Lang
CGS International expects Malaysia's palm oil sector to face near-term price weakness as supply increases, according to a recent report. The report noted that Malaysian palm oil stocks rose in March 2025, driven by higher production and slower exports.
According to the Malaysian Palm Oil Board, stocks climbed 4% month-on-month in March 2025, in line with a Bloomberg survey. Palm oil output also exceeded expectations, reaching 1.39 million tonnes compared with Bloomberg's estimate of 1.31 million tonnes. The rise in output was attributed to growers speeding up harvesting ahead of the Eid al-Fitr holiday.
Although palm oil exports rose just 1% month-on-month in March 2025, overall performance remained sluggish. The report expects stocks to keep rising in the coming months as yields improve and production increases.
The report also pointed out that the ongoing US-led trade war could weigh on demand for edible oils and disrupt supply chains, contributing to an expected weakness in crude palm oil prices during the second quarter of 2025.
Despite this expected weakness, CGS International maintained its "neutral" call on the sector, forecasting a 2025 crude palm oil price of 4,000 ringgit per tonne.
The report favours pure Malaysian plantation companies with high dividend yields, such as Hap Seng Plantations and Ta Ann, and also flagged SD Guthrie for its plans to divest non-core assets.
The sector faces downside risks from potential trade disruptions stemming from ongoing trade wars, while upside risks include unstable weather conditions that could affect production.