KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) has raised its average crude palm oil (CPO) price forecasts for 2026 and 2027, citing supply risks linked to a potential El Niño weather event and higher domestic consumption under Indonesia’s B50 biodiesel programme.
The investment bank increased its 2026 CPO price assumption by RM100 per tonne to RM4,450 per tonne and its 2027 forecast to RM4,300 per tonne, according to New Straits Times.
HLIB analyst Chye Wen Fei said the revision reflects the possibility of a tighter global palm oil market if adverse weather, fertiliser supply disruptions and Indonesia’s biodiesel policy coincide.
She said a developing El Niño pattern could affect palm oil production in Malaysia and Indonesia. Although its impact on fresh fruit bunch yields usually takes 12 to 24 months to become visible, markets often respond much earlier as rainfall deficits begin to emerge in key growing regions.
Chye also pointed to continued uncertainty over shipping through the Strait of Hormuz, which could affect fertiliser supplies and freight costs despite vessel movements gradually resuming after the United States and Iran signed a peace memorandum of understanding.
She said the Gulf remains an important export route for ammonia and urea, and any prolonged disruption could keep fertiliser prices high and delay deliveries to plantation companies. This could increase production costs and lead to delayed or lower fertiliser application, particularly among smallholders, who account for about one-quarter of Malaysia’s palm oil production.
On the demand side, Chye said Indonesia’s implementation of the B50 biodiesel mandate from July 1 is expected to increase domestic palm oil consumption by diverting more production towards biodiesel. The policy is likely to reduce export availability and tighten the global supply-demand balance.
She added that palm oil continues to remain competitively priced compared with soybean oil. Crude palm oil is currently trading at a discount of about US$440 per tonne to soybean oil, significantly wider than the historical three-year and five-year average discounts of US$190 and US$250 per tonne, respectively. The wider price gap is expected to encourage greater substitution of palm oil among major vegetable oil importers despite higher overall CPO prices.
According to HLIB estimates, every RM100 per tonne increase in its average CPO price forecast could lift earnings of plantation companies under its coverage by 3% to 8%.
The revised CPO price assumptions will be incorporated into the bank’s earnings forecasts and target prices during the upcoming results season.
HLIB maintained its “Overweight” rating on the plantation sector, saying stronger palm oil prices are expected to continue supporting company earnings. It said plantation firms with a larger upstream business and greater exposure to Malaysia are likely to benefit the most from higher CPO prices while facing lower regulatory and policy risks overseas.
The brokerage’s preferred stocks are SD Guthrie Bhd, with a “Buy” rating and a target price of RM7.05, and Hap Seng Plantations Holdings Bhd, also rated “Buy” with a target price of RM2.89.
