Lang
Palm oil production is expected to remain seasonally firm over the next two to three months as the industry enters its peak-crop period, according to BIMB Research, which maintains an 'overweight' stance on the plantation sector.
The research house noted that emerging dry conditions are unlikely to materially affect output in the second half of financial year 2026 (2H26), given the normal biological lag between rainfall deficits and oil-palm yields. However, it cautioned that the risk of lower regional production is increasing for 2027, particularly if the very strong El Niño and below-normal rainfall persist through the end of 2026.
For July 2026, Malaysian Palm Oil Board (MPOB) data showed that Malaysia's crude palm oil (CPO) production rose 9.4% month-on-month to 1.79 million tonnes, lifting inventories to 2.63 million tonnes. The MPOB's average CPO price for the first seven months of 2026 stood at RM4,388 per tonne.
BIMB Research said higher biodiesel demand and concerns over the strengthening El Niño have supported CPO prices. 'We expect prices to remain at current elevated levels over the next three months, although seasonally stronger production and high Malaysian inventories may limit sharp near-term upside,' the firm said. 'Prices should remain firm in 2027 as the lagged impact of El Niño could tighten regional supply.'
The research house maintained its CPO price forecasts of RM4,400 per tonne for 2026 and RM4,500 per tonne for 2027, noting that upside risk could emerge if the regional palm-oil or global edible-oil supply shortfall becomes more pronounced.
On the cost front, BIMB Research identified higher fertiliser and logistics expenses as key earnings risks. 'Earlier procurement and firm CPO prices should partly mitigate the near-term impact for most companies under our coverage, while upstream planters with strong balance sheets and improving crop profiles are better positioned to absorb the cost pressure,' it said.
BIMB Research continues to prefer upstream-focused planters, which offer the clearest earnings leverage to higher CPO prices heading into 2027, given the potential supply tightness. It added that downstream exposure provides diversification, but earnings uplift remains less predictable amid persistent overcapacity and thin refining margins.
Commenting on the concluded second quarter, the research house said the upstream segment delivered a strong sequential recovery as the industry moved out of the seasonal low-crop period. Total fresh fruit bunch (FFB) production across its coverage rose 13.8% quarter-on-quarter to 5.91 million tonnes, while CPO and palm kernel output climbed 15% and 13.7% quarter-on-quarter, respectively. Average realised CPO selling price increased to RM4,215 per tonne, with higher volumes and prices supporting margins and mitigating higher costs.
'We expect resilient 2H26 upstream earnings on seasonally stronger third-quarter production and firm CPO prices,' the research house said.
For downstream, BIMB Research reported that earnings improved sequentially in the second quarter of 2026, although performance remained uneven across products and geographies. It expects near-term oleochemical demand to remain supported by supply disruptions in global petrochemical markets, which have improved the relative competitiveness of palm-based products. Nevertheless, commodity refining and kernel-crushing margins are likely to stay thin due to excess regional capacity, intense competition from Indonesian producers, and volatile feedstock costs.
Source: The Star