HLIB lifts CPO forecasts on El Nino, Indonesia biodiesel push
08/07/2026 (New Straits Times), Kuala Lumpur - Hong Leong Investment Bank Bhd (HLIB) has raised the average crude palm oil (CPO) price assumptions for 2026 and 2027 by RM100 per tonne (mt) to RM4,450/mt and RM4,300/mt, respectively.
Its analyst Chye Wen Fei said the revision reflects heightened risks from a potential El Nino weather event and Indonesia's B50 biodiesel mandate.
"The global palm oil market could remain structurally undersupplied should weather risks, fertiliser disruptions and Indonesia's biodiesel policy converge – this could come at a time when Indonesia's higher biodiesel blending mandate is expected to absorb a larger share of palm oil supply," she said in a note.
On the supply side, Chye said the emergence of an El Nino weather pattern poses a risk to palm oil output in Malaysia and Indonesia.
She said that while its impact on fresh fruit bunch yields typically takes 12 to 24 months to materialise, the market tends to price in potential production losses much earlier, particularly if rainfall deficits become more severe across key growing regions.
She also pointed to lingering disruptions to shipping through the Strait of Hormuz, which could continue to affect fertiliser availability and freight costs despite vessel movements gradually resuming following the US-Iran peace memorandum of understanding.
Given the Gulf's importance as a key export route for ammonia and urea, prolonged supply chain disruptions could keep fertiliser prices elevated and delay deliveries to plantation operators.
"This may increase production costs and, if supply constraints persist, lead to deferred or reduced fertiliser application.
"In turn, this poses a risk to palm yields over the medium term, particularly among smallholders, which account for about a quarter of Malaysia's palm oil production," she added.
On the demand front, Chye expects Indonesia's implementation of the B50 biodiesel mandate from July 1 to significantly increase domestic palm oil consumption by diverting a larger share of production towards biodiesel, reducing export availability and tightening the global supply-demand balance.
She also noted that palm oil remains competitively priced against soybean oil, with CPO trading at a discount of about US$440/mt compared with soybean oil, substantially wider than the historical three- and five-year average discounts of US$190/mt and US$250/mt, respectively.
"Such a wide discount should continue to encourage substitution towards palm oil among major vegetable oil importers, providing an important buffer despite elevated absolute CPO prices," she said.
Based on HLIB's estimates, every RM100/mt increase in its average CPO price assumption would lift earnings of plantation companies under its coverage by between three and eight per cent.
Chye said the revised CPO price assumptions will be incorporated into its earnings forecasts and target prices during the upcoming results season.
She maintained an "Overweight" call on the sector, saying sustained CPO price strength would continue to support earnings.
She continues to favour plantation companies with predominantly upstream operations and greater exposure to Malaysia, given their stronger earnings leverage to higher CPO prices and lower exposure to foreign regulatory and policy risks.
Her top sector picks are SD Guthrie Bhd, with a "Buy" call and a target price of RM7.05, and Hap Seng Plantations Holdings Bhd, also rated "Buy" with a target price of RM2.89.