The Edge Malaysia (07/04/2026) - This article first appeared in The Edge Malaysia Weekly on March 30, 2026 - April 5, 2026

THE oleochemical industry — a business that has been through a tough last few years — could be a beneficiary of the Middle East conflict, which has made competing petrochemicals scarce and more expensive. However, it is not a cause for celebration as operating costs are going up and the sourcing of key ingredients in the manufacturing process is becoming increasingly challenging.

“There will be some upside for oleochemicals, where the customers can use oleochemical products interchangeably with petrochemical products. However, not all products fall into this category. Moreover, high energy prices will increase the business cost for the oleochemical industry too, albeit to a lesser extent in comparison,” says Tan Kean Hua, deputy group CEO of IOI Corp Bhd (KL:IOICORP).

However, due to the “uncertain and still evolving global business conditions”, the group has yet to see any increase in demand.

Oleochemicals are chemical compounds — fatty acids, fatty alcohols, esters and surfactants — derived from natural oils and fats, including palm oil and palm kernel oil (PKO). The intermediate products are used to make non-food products such as cosmetics, personal and home care, lubricants and plastics.

“We’re not having a party. For the short term, if we have the ingredients in stock, we can leverage it, but if the war goes on for six to nine months, we will have to see,” says an executive from another integrated palm oil group.

He explains that the upside for the oleochemical industry is due to the scarcity of raw materials derived from petrochemicals, which has shifted users’ attention to palm-based oleochemicals.

Top 10 movers of BM Plantation Index (March 1-26) - https://myassets.theedgemalaysia.com/pics/2026/Oleochemical_1_TEM1620_theedgemalaysia_20260401200326_112y53.jpg

The emerging scarcity of fossil fuel derivatives such as linear alkylbenzene sulphonic acid, a surfactant used in household detergents, is good news for oleochemical producers as it can be substituted by methyl ester sulphonate, a palm-based anionic surfactant.

“We’re beginning to see volumes go up and, as a result, there could be some margin expansion,” says the executive. However, he points out that procuring the sulphur required for the production of methyl ester sulphonate could also prove to be a challenge as most of the industrial sulphur used today is derived from petrochemicals.

Aside from IOI, other integrated palm oil producers such as Kuala Lumpur Kepong Bhd (KL:KLK), SD Guthrie Bhd (KL:SDG) and FGV Holdings Bhd have exposure to the downstream oleochemical business. Bursa Malaysia-listed Southern Acids (M) Bhd (KL:SAB) is also a major oleochemical manufacturer while Mega First Corp Bhd (KL:MFCB) has ventured into the segment via a joint venture with 9M Technologies Sdn Bhd.

Bloomberg Intelligence’s agriculture analyst Alvin Tai said early this month that higher petrochemical prices boost oleochemical producers’ pricing power, leading to better profit margins.

“KLK and other oleochemical producers have watched the walls close in around their margins over the past three fiscal years as high feedstock costs — coconut and PKO — take their toll. Stagnant petrochemical prices have not helped as they act as a constraint on oleochemical prices,” he wrote on March 9.

Nevertheless, concurring with IOI, another oleochemical industry executive says most petrochemical molecules cannot be easily replaced by oleochemicals, with the exception of surfactants like fatty alcohols. “We did see a small uptick in demand mainly due to panic buying and restocking,” he says.

Over the last few years, oleochemical manufacturers have suffered from compressed margins or have been bleeding losses due to intense competition caused by industry-wide structural factors and the high costs of feedstock, namely PKO and coconut oil.

For example, Southern Acids’ oleochemical manufacturing business has been registering losses before tax since its financial year ended March 31, 2023 (FY2023). Although LBT (loss before tax) shrank to RM26.5 million for FY2025 from RM32.64 million in FY2024, it remained in the red with an LBT of RM25.64 million for the nine months ended Dec 31, 2025.

IOI’s Tan expects the prices of lauric oils (PKO and coconut) to remain elevated and intends to pass on the higher costs into the products’ pricing. “For those that we can’t pass on fully and immediately, we will do it partially or in stages.”

“On the operational side, we have [improved] and will continually improve on our plant efficiency and yields to extract maximum value from each tonne of feedstock while tightening cost controls across energy, logistics and processing,” he adds, when asked how IOI is managing high feedstock costs.

For integrated players with upstream operations, higher CPO (crude palm oil) prices will boost revenue but diesel and fertiliser costs are expected to rise.

According to BMI, a unit of Fitch Solutions, the Gulf Cooperation Council region accounted for around 20% of global nitrogenous fertiliser exports by value in 2024 and supplies a significant share of the natural gas used in fertiliser production.

Analysts say the listed plantation companies under their coverage have locked in fertiliser prices and volumes at least for the first half of the current year, with some having done so for up to a year. However, there is no guarantee that all of the orders will be delivered if the conflict worsens, leading to a force majeure.

As for diesel, the pump price in Peninsular Malaysia has risen nearly 77% to RM5.52 per litre from RM3.12.

At IOI, its fertiliser requirements are covered for the remainder of its financial year ending June 2026.

“With CPO currently trading at around RM4,500 per metric ton, IOI enjoys an additional margin of about RM500 per MT, which helps to cushion the impact of higher fertiliser costs,” says N B Sudhakaran, the group’s plantation director.

However, higher diesel prices are a headwind, with every 10 sen rise increasing costs for IOI by roughly RM1 million.

“We are actively mitigating this through optimising mechanisation efficiency in harvesting and logistics to reduce diesel intensity while maintaining high yields to keep unit costs low. At the same time, we are expediting ongoing biogas and solar power projects to diversify energy sources while tightening spending and improving productivity to absorb part of the increase,” says Sudhakaran.

The impact of higher costs on replanting activities is a valid concern given that fertiliser and diesel are major cost components.

“While replanting remains a strategic priority, elevated costs may influence the pace and phasing of the programme. We will continue to prioritise blocks with the oldest palms and lowest yields but the acreage replanted could be moderated to balance cost pressures with long-term sustainability,” says Sudhakaran, adding that for FY2026, the group will focus on palms exceeding 25 years of age and underperforming areas.

“We expect to replant approximately 8% of the total planted area but may consider moderating it to 4% to 5% if fuel costs continue at elevated prices,” he adds.

According to RHB Research, fertiliser costs comprise around 20% to 30% of total palm oil production costs while transport and logistics make up around 5% to 10%.

“No one’s going to get out of this [conflict] unscathed. Everyone’s affected, from [those who consume] fuel to fertiliser to food,” says a palm oil industry player.

Bursa Malaysia Plantation Index outperformer

Palm oil’s function as a feedstock for biodiesel has boosted the appeal of plantation stocks, making the Bursa Malaysia Plantation Index one of three best-performing sectoral indices on the local bourse since the US and Israel launched strikes against Iran.

From March 1 to 26, three of the 13 sectoral indices tracked — BM Energy, BM Plantation and BM Industrial Products & Services — have eked out positive returns.

The BM Industrial Products & Services Index rose the most — by 6.61% — followed by the BM Plantation Index (5.62%) and the BM Energy Index (3.61%).

The top three counters that moved the BM Plantation Index most as the war dragged into the fourth week were United Plantations Bhd (KL:UTDPLT), IOI and KLK.

Meanwhile, CPO futures on Bursa Malaysia have risen 10%, tracking the 38% jump in Brent crude since March 1. The correlation between the two commodities emerged in the early 2000s and strengthened after the mid-2000s when oil prices traded above US$140 per barrel and biofuel mandates were introduced in the EU and the US.

“Historically, crude oil has a low positive price correlation with CPO when the price gap is wide between them. However, when crude oil price narrows its gap with CPO, we expect a stronger price correlation between them as a high crude oil price will make biofuel mandates more economical,” said Maybank Investment Bank’s regional plantations analyst Ong Chee Ting in recent reports.

He believes Indonesia may accelerate its B50 palm biodiesel plan (50% palm oil blend) from B40 currently if crude oil stays above US$100.

However, a snag in the plan is the shortage of methanol, which is used in the production of biodiesel and transported via the Strait of Hormuz.

“Adequate supplies of methanol are essential to this process and the outbreak of hostilities in the Middle East could threaten 32% of its methanol supply,” said Bloomberg Intelligence’s Tai on March 20.

Methanol prices have jumped to over US$500 per tonne as at March 26 from less than US$350 in late February.

Meanwhile, a development closely followed by industry watchers is the finalisation of long-delayed US biofuel blending mandates, which is expected by the end of March. The decision is expected to have sweeping implications on the US energy and agricultural sectors.

Rakuten Trade vice-president of research Thong Pak Leng expects CPO prices to trade within the range of RM4,500 to RM4,700 per MT but says it could reach RM5,000 per MT if the war is prolonged.

“The CPO price has risen to above RM4,500, which is beneficial for plantation companies as the average cost for them ranges from RM2,000 to RM3,000,” he says.

Rakuten Trade’s top picks for the sector are IOI, KLK and Ta Ann Holdings Bhd (KL:TAANN) as they are integrated palm oil players. “While we generally prefer upstream, the potential upside for purely upstream stocks appears to be limited,” says Thong. 

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