Lang
Singapore-listed palm oil companies are poised to report stronger second-quarter earnings, primarily driven by higher crude palm oil (CPO) prices which are boosting plantation margins.
Analysts project that upstream-focused producers, including First Resources and Bumitama Agri, are best positioned to benefit from the rally in palm oil prices. Conversely, integrated groups such as Wilmar and Golden Agri-Resources may see some of their gains offset by increased downstream feedstock costs.
This positive outlook comes as palm oil futures have climbed approximately 17% year-to-date. This upward trend has been fueled by several factors, including tightening supply expectations due to the El Nino weather phenomenon, Indonesia's B50 energy mandate, and renewed concerns that disruptions to Red Sea shipping could elevate crude oil prices, thereby increasing demand for palm oil-based biodiesel.
CPO futures ascended by 14.8% to RM4,749 a tonne between March 2, the first trading day after the Gulf crisis began, and April 3. Prices have since retreated slightly, declining by 2.3% to RM4,640 a tonne as of 3:30 pm on Monday, August 3.
The Malaysia Palm Oil Board (MPOB) forecasts CPO prices to remain above RM4,000 a tonne in the short term, with an average price projected between RM4,300 and RM4,500 a tonne in 2026.
Against this backdrop, Nirgunan Tiruchelvam, head of consumer and the Internet at Aletheia Capital, informed 'The Business Times' that he expects SGX-listed planters to surpass Bloomberg's Q2 estimates for earnings before interest, taxes, depreciation, and amortisation (Ebitda) by around 10%.
However, analysts cautioned that supply chain disruptions linked to the ongoing Middle East conflict are driving up the cost of essential plantation inputs, such as fertiliser and diesel. Upstream producer Bumitama Agri stated during its Q1 business update that it had secured nearly all of its full-year fertiliser requirements, with costs anticipated to rise by 5 to 10%. OCBC analysts Ada Lim and Chu Peng also noted that higher diesel prices could intensify cost pressures, given that palm oil plantations heavily rely on diesel to power heavy machinery for transporting fresh fruit bunches and processed products.
Analysts described the outlook for vertically integrated players like Wilmar and Golden Agri-Resources as 'more nuanced', suggesting that higher upstream contributions might be 'partly offset' by increased raw material costs in their downstream business segments. Golden Agri-Resources expects higher fertiliser costs for FY2026, which will in turn raise its plantation costs. However, Lim and Chu of OCBC added that 'it is still too early to quantify the final impact, given the current level of market uncertainty'. They also highlighted that locally sourced urea constitutes one of the largest components of Golden Agri-Resources' fertiliser mix, potentially limiting its exposure to global supply chain disruptions.
In a research note dated July 30, Bloomberg Intelligence analyst Alvin Tai indicated that Wilmar's Q2 Ebitda could exceed last year's figures, supported by higher soybean crush volumes and improved oil palm plantation earnings. Yet, he pointed out that higher fertiliser costs, potentially averaging about 13% above December 2025 levels, are 'likely to offset some of the gains'.
Tiruchelvam noted that the protracted Middle East conflict, including the Houthi rebels' recent threat to blockade the Red Sea, is expected to push crude oil prices higher, thereby enhancing the economic viability of biodiesel blending. He estimates that a US$10 a barrel increase in Brent crude prices could uplift CPO prices by 3 to 6% in the near term.
Hoe Lee Leng, an analyst at RHB, observed that CPO prices have transitioned from being solely driven by supply and demand to becoming policy-driven, 'particularly by energy mandates'. Indonesia's B50 policy, which mandates the blending of 50% palm oil-based fuel with diesel and takes effect in July 2026, necessitates 18 million tonnes of CPO annually. This represents over 35% of the country's total production, 'effectively tightening global supply', according to Hoe.
Meanwhile, the Malaysia Palm Oil Board anticipates the impact of the El Nino weather phenomenon to surface in the fourth quarter of 2026, with Malaysia projected to experience a 2 to 4% year-on-year decline in output this year. Despite the tight supply, the board believes that the current catalysts of El Nino and B50 are 'somewhat priced in' for this year, but a further CPO price spike could occur in 2027 as lower production eventually feeds into the market.
Industry observers expect the earnings momentum to persist into the second half of the year. Based on Tiruchelvam's FY2026/2027 CPO price forecast of US$1,240 a tonne, the gross margin for a tonne of palm oil is approximately US$840 a tonne. After accounting for taxes and additional costs, this translates to a 'phenomenal' operating margin of about 60%, he stated.
He reiterated a positive stance on SGX-listed plantations, noting that Bumitama Agri and First Resources are 'best exposed to CPO price gains due to their young estates and high oil extraction rates'. Indofood Agri Resources is also expected to benefit from stronger downstream refining spreads, he added. The company recently reported a 31.6% increase in net profit to 444.5 billion rupiah (US$24.6 million) for the first half ended June 30.
Similarly, OCBC's Lim and Chu affirmed that the net earnings outlook for the sector is 'constructive' for H2 2026.
In late May and early June, SGX-listed planters experienced a share sell-off following the Indonesian government's announcement of plans to centralise exports of key natural resources through a state-owned enterprise, Danantara Sumberdaya Indonesia (DSI). However, an executive of the fund overseeing DSI clarified in June that the entity 'will not act as a trading middleman that buys commodities from producers and resells them overseas'. Lim and Chu of OCBC commented that 'the scale-back of Indonesia’s centralised export control policy removes uncertainty over how the policy will be executed, allowing normal harvesting, processing and shipment to resume'. They added that SGX-listed players would also be able to better maintain direct control over customer relationships. Nevertheless, they concluded that 'regulatory risks have increased, in our view, given the pace and unpredictability of recent regulatory changes'.
Source: The Business Times