New Straits Times (11/08/2026) - KUALA LUMPUR: Malaysia's palm oil inventories rose to a five-month high in July as stronger production outpaced exports, but research firms expect crude palm oil (CPO) prices to remain firm in the second half of 2026 amid growing concerns over El Nino and tighter global supply.

Palm oil stocks increased 3.3 per cent month-on-month to 2.63 million tonnes in July, marking the fourth consecutive monthly increase, according to the Malaysian Palm Oil Board (MPOB) data.

Production rose 9.4 per cent month-on-month to 1.79 million tonnes, while exports increased 14.5 per cent to 1.39 million tonnes.

Imports, meanwhile, fell 51.9 per cent to 49,566 tonnes, while domestic consumption declined 10.8 per cent to 365,872 tonnes.

CIMB Securities Sdn Bhd said the higher exports, particularly to India ahead of the festive season, helped limit the increase in inventories. However, production was still sufficient to push stocks higher during the month.

Exports also remained strong to the European Union, India and the Middle East, according to Public Investment Bank Bhd (PublicInvest), although shipments to China and the United States declined.

Despite the increase in stocks, the firms expect CPO prices to remain supported in the coming months, with concerns over weather conditions and global vegetable oil supply providing a floor to prices.

CIMB Securities expects CPO prices to trade between RM4,400 and RM4,600 a tonne in the near term, citing rising geopolitical risks, strengthening El Niño conditions and higher biodiesel demand in Indonesia.

It said stronger El Niño conditions could reduce oil palm yields and production in Southeast Asia with a time lag, posing greater risks to supply from 2027 onwards.

The firm also pointed to sharply lower sunflower oil exports from Russia and Ukraine following attacks on ports and infrastructure, which could support substitution demand for palm oil ahead of India's September to November festive season.

Indonesia's nationwide B50 biodiesel mandate is another source of support, with annual palm biodiesel consumption estimated at between 16.7 million and 18 million kilolitres.

PublicInvest similarly expects CPO prices to hold up in the second half of 2026, citing concerns over weaker palm oil yields in Malaysia and Indonesia as El Niño develops and potentially peaks towards year-end.

It said the United States Department of Agriculture had also lowered its 2026-27 Indonesian palm oil production forecast to 47.2 million tonnes from 48 million tonnes, citing persistent drought conditions that could affect crop water availability in key growing regions from October.

RHB Research expects Malaysia's palm oil inventories to remain above two million tonnes throughout 2026, as the impact of El Niño on output is likely to be felt mainly towards year-end and into 2027.

The firm search also expects export momentum to continue as major importers increase purchases ahead of the festive season.

Against this backdrop, the plantation sector is expected to see stronger earnings in the second quarter, supported by higher CPO prices and improved fresh fruit bunch (FFB) production.

RHB Research said Malaysian spot CPO prices averaged RM4,519 a tonne in the second quarter, up 8.2 per cent quarter-on-quarter, while FFB production among Malaysian plantation companies under its coverage rose 8.4 per cent.

PublicInvest noted that average CPO prices increased to RM4,523 a tonne in the second quarter from RM4,071 a tonne a year earlier, despite Malaysian CPO production falling 7.1 per cent year-on-year to 4.7 million tonnes.

It expects the combination of stronger CPO prices and production to drive margin expansion for most upstream plantation companies.

RHB Research expects earnings to continue improving into the third quarter, supported by seasonally stronger output and higher average selling prices.

CIMB Securities has raised its 2026 and 2027 CPO price forecasts by RM50 a tonne to RM4,450 and RM4,550, respectively, while maintaining its "Overweight" call on the plantation sector.

RHB Research also maintained its "Overweight" call, while PublicInvest retained the same rating and said it was reviewing its average CPO price assumption of RM4,400 a tonne for 2026 and 2027.

For stock picks, CIMB Securities favours IOI Corp Bhd, Kuala Lumpur Kepong Bhd and Hap Seng Plantations Holdings Bhd.

RHB Research's preferred names also include IOI Corp, Johor Plantations Group Bhd, Sarawak Oil Palms Bhd, Hap Seng Plantations Holdings Bhd, PT Triputra Agro Persada Tbk, SD Guthrie Bhd and First Resources Ltd.

PublicInvest's top pick is Ta Ann Holdings Bhd, which it favours for its high dividend yield and above-industry-average FFB production growth.

Read more at https://www.nst.com.my/business/corporate/2026/08/1508572/el-nino-biodiesel-demand-support-cpo-prices-despite-rising