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The Malaysian plantation sector is positioned to benefit from a confluence of tighter global edible oil supplies and firmer biodiesel demand, with crude palm oil (CPO) prices expected to remain elevated over the coming twelve months, according to Kenanga Research.
The research house, which has maintained its 'overweight' rating on the sector, said additional upside could emerge if a strong El Nino weather pattern disrupts palm oil production and further constrains global edible oil availability.
'Edible oil supply tightness was already in the backdrop at the start of 2026,' the research note stated, adding that several converging factors are now supporting prices.
Kenanga Research highlighted that the ongoing conflict in the Middle East has lifted demand for biodiesel, while shipping disruptions in the Black Sea are constraining sunflower oil exports from Ukraine. Together, these factors are tightening the global edible oil balance.
On the weather front, a potentially severe El Nino could weigh on palm oil production through forest fires, haze-related disruptions, and weaker fresh fruit bunch yields in 2027. The research house noted that historically, a very strong El Nino has reduced palm oil output by 2% to 9%, which could in turn push CPO prices up by 5% to 10%.
Against this backdrop, Kenanga Research maintained its CPO price assumptions at RM4,500 per tonne for 2026 and RM4,700 per tonne for 2027. The commodity has already climbed 7% from the first-half 2026 average of RM4,329 per tonne to RM4,612 per tonne in August.
With haze returning to South-East Asia and El Nino expected to worsen towards year-end, Kenanga Research expects CPO prices to remain high over the next three to six months.
'Compounded by higher biodiesel demand from the ongoing Middle East conflict and Black Sea shipping disruption of Ukrainian sunflower exports, prices for CPO are expected to stay high for the coming three to six months,' the research house said.
The stronger commodity environment has already been reflected in plantation earnings during the second quarter of financial year 2026.
Source: The Star