CPO prices to remain under short-term pressure

PETALING JAYA: Analysts expect crude palm oil (CPO) prices to remain under pressure in the mid to short-term given the rising inventory and higher output trends.

The latest Malaysian Palm Oil Board’s palm oil statistics for May revealed that palm oil stocks surged to 1.99 million tonnes, up 6.6% month-on-month and 13.5% year-on-year.

Production for the month under review also hit an eight-month high at 1.77 million tonnes.

Hong Leong Investment Bank Research (HLIB Research) in a report said the palm oil stock level will likely remain near the two million tonne mark this month.

“This is as seasonally higher crop yields and subdued festive-driven demand are expected to be offset by potentially stronger demand from India, following its recent decision to reduce the import duty on CPO to 10% from 20%,” the research house added.

HLIB Research, which is “neutral” on the sector given the absence of clear demand catalyst, said, “We maintain our 2025 to 2026 CPO price assumptions of RM4,000 per tonne and RM3,800 per tonne, respectively, with the view that continued output recovery particularly from Indonesia will continue to cap palm oil prices over the near-to-medium term.”

For exposure, the research house’s top picks are SD Guthrie Bhd with a target price of RM5.17, Johor Plantations Group Bhd at RM1.35 and IOI Corp Bhd at RM4.24.

Meanwhile, RHB Research is still “overweight” on the sector with planters’ earnings likely to continue to grow this year, on higher CPO and palm kernel prices.

The research house firm said it made no changes to its recommendations after the reporting season for the first quarter of this year (1Q25) as the earnings results were mostly within expectations.

RHB Research noted 11 planters under its coverage turning earnings in line with forecasts, while three underperformed.

Its top picks within the sector include Johor Plantations, Sarawak Oil Palms Bhd, Bumitama Agri Ltd, PP London Sumatra Indonesia and SD Guthrie Bhd.

In Malaysia, RHB Research expects palm oil output should continue ramping up towards the peak season, while demand should also improve, as “CPO prices are currently within historical discounts versus its competitors”.

MIDF Research said in a note to clients: “We anticipate that the CPO prices will remain stabilised, hovering within the range of RM3,900 to RM4,200 per tonne.

“This is typically in line with seasonal production trends, as the pollination period ends in March and palm oil output is expected to recover – potentially leading to an increase in closing stock levels.”

The research house said that the sector’s top-line will continue to rise for the first half of this year, in line with higher average CPO price assumptions.

“However, margins are likely to remain under pressure due to the persistent elevated cost of production, caused by the higher locked in fertiliser costs from the second half of last year, coupled with elevated external fresh fruit bunch (FFB) purchase expenses amid low mills utilisation rates,” it added.

MIDF Research has maintained a “neutral” call on the sector at this juncture.

While the CPO prices are expected to remain under pressure, it expects production is likely to perform, leading to a ceteris paribus performance for 2025.

“Therefore, we foresee only a handful of players likely to benefit from elevated CPO prices.

“Hence, we recommend avoiding smaller players with significant exposure to external FFB purchases as these factors could risk their CPO production, particularly during the current biological tree rest environment,” the research house noted.

Instead, MIDF Research suggested focusing on larger players such as IOI with a target price of RM4.42, SD Guthrie at RM5.43 and Genting Plantations Bhd at RM6.10, whose CPO procurement, which are over 50% from their own estates offers more stability in realising CPO prices.

TA Research in a report said its CPO price forecast is unchanged at RM3,800 per tonne for this year.

It reiterated a “hold” call on SD Guthrie, Kuala Lumpur Kepong Bhd and Kim Loong Resources Bhd, while maintaining a “buy” call on United Malacca Bhd and TSH Resources Bhd.