The Star Online (18/04/2025) - PETALING JAYA: The plantation sector faces a mixed outlook in the near term, as geopolitical developments and recovering supply dynamics counter the potential boost from shifting trade flows.

As such, there is expectation that crude palm oil (CPO) prices would remain range-bound despite external triggers that could influence demand.

Hong Leong Investment Bank (HLIB) Research, in its latest sector review, maintained a “neutral” stance on the plantation sector, citing the absence of a clear demand catalyst and a cautious price outlook.

It noted that year-to-date, CPO prices have averaged RM4,698 per tonne, but projected a moderation over the coming years.

“We maintain our CPO price assumptions of RM4,000 and RM3,800 per tonne for 2025 to 2026,” the research house said, pointing to a confluence of market factors likely to cap any significant price upside.

Among these, HLIB Research highlighted the intensifying trade tensions between the United States and China, which could lead to an increase in China’s palm oil imports.

“The escalation in US-China trade tensions could potentially lead to a shift in China’s soybean demand towards palm oil as a substitute, thereby supporting appetite for the latter,” it explained.

However, this potential demand uplift may be tempered by broader market uncertainties.

“This may be counterbalanced by global demand uncertainties, arising from US tariffs and declining crude oil prices.”

HLIB Research also flagged the resurgence in palm oil supply, which is expected to exert downward pressure on prices.

“Palm oil supply has started showing signs of recovery, and this would cap upside of palm oil prices,” it noted.

It drew parallels with the earlier round of US-China trade tensions in 2018, which had a notable impact on global vegetable oil trade flows.

“Recall, China’s move to impose a 25% tariff on US soybean imports (in a move to retaliate against US’ tariffs on Chinese products) had resulted in China’s soybean imports from US declining by 57% (or 18.6 million tonnes) in 2018, while its soybean imports from Brazil rose by 41% (or 21.8 million tonnes).

“During the year, the tariff war also resulted in China’s palm oil imports increasing by 5% to 5.3 million tonnes,” it observed,

At present, trade hostilities remain fluid, with the United States imposing a 145% tariff on Chinese goods, while China counters with a 125% tariff on US goods.

“The intensified trade tension between the United States and China will result in a shift in trade flows within the vegetable oil complex,” said HLIB Research.

However, the US demand for palm oil is expected to remain largely unaffected.

“The impact of US tariff on America’s palm oil demand, on the other hand, will likely be muted.

“In 2024, the United States imported a total of 1.8 million tonnes of palm oil with the bulk of its import from Indonesia,” it added.

Against this backdrop, HLIB Research has recommended selective exposure within the sector.

Its top picks are Johor Plantations Group Bhd, with a target price of RM1.35 per share, Hap Seng Plantations Holdings Bhd at RM2.44 and IOI Corp Bhd at RM4.24.

Read more at https://www.thestar.com.my/business/business-news/2025/04/18/cpo-prices-likely-to-remain-rangebound