Tighter global supplies positive for CPO sector

By the Editorial Team · Friday, October 9, 2026

Malaysian brokerages predict that the plantation sector will face weak conditions in the short term due to high palm oil inventories but expect crude palm oil prices to recover by 2027, driven by a potential supply shortage from a strong El Nino weather event and policy changes such as Indonesia's increased biodiesel mandate. This anticipated supply tightening could reduce global palm oil output and support higher prices, presenting a buying opportunity for investors despite near-term challenges.

The plantation sector is expected to face subdued conditions in the near term, but tighter global supply dynamics could help support a recovery in crude palm oil (CPO) prices by 2027, according to recent research reports from several Malaysian brokerages.

CIMB Research maintained an "overweight" rating on the sector, describing the current weakness in both CPO prices and plantation stocks as a buying opportunity ahead of a potential supply tightening in 2027. The firm highlighted the possibility of a strong El Nino weather event reducing global palm oil output, a factor that could tighten supply. CIMB's preferred stocks in the sector include IOI Corp Bhd, Kuala Lumpur Kepong Bhd (KLK), Genting Plantations Bhd, and Hap Seng Plantations Holdings Bhd.

While CIMB drew parallels to the El Nino event of 2015-16, it cautioned that variations in timing and intensity, along with policy changes in Indonesia—such as the biodiesel B50 mandate—and other geopolitical and regulatory factors, mean this year’s weather pattern may not follow the same trajectory. The firm also noted that elevated Malaysian palm oil inventories could weigh on CPO prices in the near term.

RHB Research echoed a similar outlook, maintaining an "overweight" stance on the plantation sector. It expects CPO prices to remain range-bound over the next several months before rising in the first half of 2027 when production begins to decline amid El Nino effects and stock levels normalize. RHB’s 2026 and 2027 CPO price estimates stand at RM4,400 and RM4,500 per tonne, respectively. Among its favored stocks are Sarawak Oil Palms Bhd, IOI, Hap Seng, SD Guthrie Bhd, and Johor Plantations Group Bhd. RHB also highlighted that Indonesia’s plan to increase its biodiesel mandate to B60 from B50 in 2027 could remove an additional five to six million tonnes of palm oil from the global market, potentially supporting prices. Moreover, a favorable palm oil-gas oil price spread may rekindle discretionary biodiesel demand.

UOB Kay Hian (UOBKH) Research similarly maintained an "overweight" rating on the sector but pointed to record-high Malaysian stockpiles as a constraint on price growth early next year. UOBKH forecasts CPO prices to reach RM4,500 per tonne in 2026 and RM4,700 in 2027. The firm projects that a strong El Nino could reduce Malaysian palm oil output by about 8% in 2027, lowering stockpiles to around 1.6 million tonnes by the end of that year. Its sector preferences include SD Guthrie, Genting Plantations, and KLK. UOBKH noted that end-September stock levels reached 3.3 million tonnes, surpassing the December 2018 record of 3.22 million tonnes but slightly under the median forecast of 3.45 million tonnes from a Bloomberg survey.

One analyst emphasized that although the immediate outlook remains challenging due to current inventory pressures, the anticipated supply tightening linked to El Nino risks should improve sector prospects in 2027. Investors are advised to consider the long-term picture beyond near-term inventory concerns as production impact from weather irregularities materializes.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.