CPO price weakness likely temporary, recovery expected soon
07/01/2026 (New Straits Times), Kuala Lumpur - The recent dip in crude palm oil (CPO) price is expected to be short-lived, with price recovery expected soon.
Hong Leong Investment Bank Bhd (HLIB) said the recovery will be supported by seasonally lower cropping patterns, the onset of La Niña conditions affecting palm oil harvesting in Brazil and renewed concerns on palm oil output growth in Malaysia and Indonesia.
Other factors that will drive recovery in CPO price include the implementation of the B50 biodiesel mandate in Indonesia and the finalisation of the US biofuel mandate for 2026-2027.
HLIB said data from the World Meteorological Organisation showed that there is a 55 per cent probability of crossing La Niña thresholds between December 2025 and February 2026.
"Historically, La Niña brings above-normal rainfall across Southeast Asia and drier conditions over in parts of the Americas, particularly Brazil and Argentina.
"If materialised, such weather patterns could weigh on global edible oil supplies. In Southeast Asia, excessive rainfall may disrupt palm oil harvesting and logistics in Malaysia and Indonesia due to excessive rainfall, while delayed soybean planting and weaker early crop establishment may occur in Brazil and Argentina amid reduced precipitation," said the firm.
It added that concerns over palm oil output growth in both Malaysia and Indonesia will likely resurface due to several reasons, including ageing tree profiles and slow replanting, alongside limited new land expansion arising from Indonesia's moratorium on new planting since 2018 and Malaysia's sustainability pledges.
The Indonesian government's move to take over more than 674,000 hectares of oil palm plantations will likely curb palm production in Indonesia and deter further investments in the country's oil palm plantation business.
The firm maintained its CPO price assumption of RM4,200 per tonne for this year.
HLIB also reiterated its "Overweight" stance on the plantations sector, supported by a constructive outlook for CPO prices over the near to medium term.
"We prefer planters with greater exposure to Malaysian upstream operations, given their high leverage to CPO prices and minimal exposure to land confiscation risks.
"Our top picks are SD Guthrie Bhd (Buy; target price: RM5.76) and Hap Seng Plantations Holdings Bhd (Buy; target price: RM2.31).