El Niño, Tight Edible Palm Oil Supply To Keep CPO Prices Elevated Till 2027
Kenanga Research expects tighter global edible oil supplies, stronger biodiesel demand and a likely severe El Niño to keep crude palm oil (CPO) prices elevated through 2027. It raised its CPO forecasts and maintained an “Overweight” outlook on Malaysia’s plantation sector.
The plantation sector is expected to remain resilient over the next two years as tightening global edible oil supplies, stronger biodiesel demand and the increasing likelihood of a severe El Niño support elevated crude palm oil (CPO) prices, according to Kenanga Research.
The research house maintained its “Overweight” call on the plantation sector, citing improving industry fundamentals despite broader market volatility.
Kenanga said global edible oil supplies are likely to remain constrained throughout 2026 even though opening inventories were about 4% higher than previously expected.
The ongoing geopolitical tensions in the Middle East have also strengthened demand for edible oils as higher crude oil prices encourage greater biodiesel blending, particularly in Indonesia and Malaysia.
“Demand can continue to be driven further beyond elevated hydrocarbon oil and energy prices,” the research house said.
Strong El Niño poses production risks
Kenanga highlighted that the biggest upside risk to palm oil prices stems from the increasingly severe El Niño weather pattern expected to develop across Southeast Asia.
Historically, very strong El Niño events have reduced global palm oil production by between 2% and 5% year-on-year. Even moderate El Niño conditions have typically been sufficient to lift CPO prices due to concerns over lower yields.
Following the latest weather developments, Kenanga has revised its average CPO price forecasts upward to RM4,400 per metric tonne for 2026, from RM4,250 previously, and to RM4,450 per tonne for 2027, compared with its earlier forecast of RM4,200.
Instead of easing in the second half of 2026, the research house now expects palm oil prices to remain elevated through the remainder of the year before peaking during the first half of 2027 as El Niño begins to affect production.
The latest outlook comes after the U.S. National Oceanic and Atmospheric Administration (NOAA) declared the onset of El Niño, with the probability of a very strong event rising to 63%.
Sector valuations remain attractive
Despite recent gains, Kenanga believes plantation stocks continue to offer attractive valuations relative to the broader market.
While the Kuala Lumpur Plantation Index (KLPLN) has recently outperformed the broader market, valuation multiples remain reasonable compared with historical levels.
The research house noted that price-to-book value (PBV), its preferred valuation metric for plantation companies, remains undemanding, particularly given the sector’s asset-rich balance sheets and improving earnings outlook.
Larger integrated plantation groups have experienced stronger valuation improvements, reflecting investors’ preference for companies with diversified operations and stronger earnings resilience.
Biodiesel demand provides additional support
Beyond weather-related supply risks, Kenanga expects structural demand for palm oil to remain robust as governments continue expanding biodiesel blending mandates.
Higher biodiesel requirements in Indonesia and Malaysia, reinforced by elevated energy prices, are expected to provide an additional source of demand alongside traditional food consumption.
Although plantation companies continue to face higher operating costs from transport and fertiliser expenses, Kenanga believes margin pressures will be partially offset by elevated palm kernel prices. It also noted that many producers had already secured much of their fertiliser requirements for 2026 before recent price increases.
Positive long-term outlook
Kenanga said the combination of tight global edible oil supplies, stronger biodiesel demand, the looming El Niño threat and manageable production costs should continue supporting palm oil prices over the medium term.
The research house believes these factors position Malaysia’s plantation sector favourably and justify maintaining its positive investment outlook, particularly as higher CPO prices are expected to underpin earnings growth through 2027.
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Source : Business Today
