Analyst keeps ‘overweight’ call on plantations amid supply deficit
11/03/2025 (Bernama), Petaling Jaya - Kenanga Research has maintained its “overweight” rating on the plantation sector, citing strong crude palm oil (CPO) prices and a persistent global supply deficit despite weaker exports.
In a note today, the research house said Malaysian Palm Oil Board (MPOB) data showed palm oil inventory fell to 1.512 million metric tonnes (MT) in February 2025, down 4% month-on-month (m-o-m) and 21% year-on-year (y-o-y).
While still well below the 10-year average, the figure was within 1% of market consensus and 8% above Kenanga’s forecast.
“Heavy rain, a shorter working month, and the Chinese New Year holidays (Jan 29–Feb 12) weighed on CPO production, which declined 4% m-o-m and 6% y-o-y.
“Exports also fell sharply m-o-m but remained largely unchanged y-o-y at 1.002 million MT, as the elevated CPO price of RM4,759 per MT, up 2% from the previous month and 20% higher than a year ago prompted buyers, including India, to switch to cheaper alternatives such as sunflower oil earlier and soybean oil more recently,” it said.
Kenanga expects CPO prices to average between RM4,600 and RM4,700 per MT in the first quarter of 2025, exceeding its initial forecast at the start of the year.
“Accordingly, we have raised our 2025 CPO price assumption from RM4,000 to RM4,200 per MT following the end-February reporting season.
“However, we maintain our expectation that CPO prices will average RM4,000 per MT in 2026 as the price premium over other vegetable oils narrows,” it said.
Kenanga highlighted that supply deficits continue to keep edible oil prices high, with the Food and Agriculture Organization’s (FAO) vegetable oil price index for February 2025 rising 2% m-o-m and 25% y-o-y.
It said poor Malaysian harvests and the threat of bagworm infestations have supported palm oil prices, while the CPO price premium to soybean oil remains sticky but is expected to shrink as CPO prices ease and soybean oil prices hold firm or rise.
“Overall, edible oils have remained elevated despite recent palm oil price softness, with the 2024 – 2025 average CPO price at RM4,000 per MT.
“Further consolidation is expected across various edible oils, though the overall outlook remains firm due to ongoing supply deficits,” it said.
Kenanga noted that the supply deficit is set to deepen in 2025, as stagnant oil palm expansion since 2018/2019 has slowed supply growth to 2% to 3% y-o-y.
“Firm prices are expected to curb demand, with 70% of edible oil consumed in the food industry, 22% to 25% used for biodiesel production, and the remainder for oleochemical and other industries.
“Actual biodiesel sales are higher due to the recycling of 15 million to 20 million MT of used cooking oil for biodiesel production, bringing the total biodiesel market closer to 25% to 30% of the primary edible oil market,” it said.
Kenanga added that if edible oil prices rise further, governments may reduce biodiesel admixture to contain food inflation, which is more politically sensitive.
Additionally, it said the upstream palm oil sector is expected to perform well in 2025 as CPO prices stay firm while production costs remain stable.
“Minimum wages in Malaysia and Indonesia have risen by 16%, and when the 2% EPF contribution for foreign workers takes effect, labour costs are projected to increase by another 6% to 8% y-o-y,” it said.