Malaysia’s plantation sector could benefit from higher crude palm oil (CPO) prices in 2027 as Indonesia’s expanded biodiesel mandate boosts domestic consumption and the delayed effects of El Niño threaten to reduce production, Focus Malaysia reported.
Hong Leong Investment Bank (HLIB) has raised its average CPO price forecast for 2027 to RM4,500 per tonne from RM4,300 previously. It has retained its 2026 forecast at RM4,450 per tonne and maintained an Overweight rating on the plantation sector, citing stronger demand and potential supply disruptions.
Indonesia began implementing its nationwide B50 biodiesel mandate on July 1, 2026. Once fully implemented, the programme is expected to increase annual domestic CPO consumption by around three million tonnes compared with the existing B40 mandate. This would be equivalent to approximately 6% of Indonesia’s 2025 palm oil production.
The higher biodiesel requirement could tighten the regional palm oil supply-demand balance and support prices received by Malaysian plantation companies.
Weather conditions are another factor that could influence prices next year. The US National Oceanic and Atmospheric Administration has raised the probability of a historically strong El Niño developing between October and December 2026 to 75%.
Drier-than-usual weather is already affecting major Indonesian oil palm-growing regions, particularly Kalimantan. However, HLIB expects the more substantial impact on yields to become evident in 2027, as weather-related stress generally affects palm oil production with a time lag.
Supply could also be affected by Indonesia’s enforcement measures against plantations operating illegally within forest areas. The resulting loss of productive land and potential disruptions to estate operations could further constrain output.
In Malaysia, meanwhile, palm oil inventories remain elevated in the near term. National stocks increased 7.5% month-on-month to 2.82 million tonnes in August 2026, reflecting higher production and weaker exports, particularly to India.
HLIB expects inventories to remain high over the next one to two months before declining as seasonal production eases and El Niño’s effects on output become more pronounced.
At the stock level, HLIB upgraded Kuala Lumpur Kepong (KLK) to Buy from Hold, citing greater clarity over the value of the group’s underlying assets following a major impairment recorded by Synthomer.
Hap Seng Plantations and IOI Corp remain the investment bank’s preferred stocks in the plantation sector, according to its October 9, 2026 assessment.
