CPO output set to beat target

PETALING JAYA: Malaysia’s crude palm oil (CPO) production for this year could surpass the Malaysian Palm Oil Board’s (MPOB) earlier forecast of 19.5 million tonnes, following unexpectedly strong output in October, according to director-general Datuk Ahmad Parveez Ghulam Kadir.

He said October’s production of 2.04 million tonnes – the second-highest monthly output since 2015 – was “slightly above forecast” and likely driven by better labour availability, improved estate upkeep and consistent rainfall.

“We thought the peak had already passed in August, but October was a bit surprising,” he told StarBiz.

“It seems very likely we will achieve the 19.5 million tonnes target this year, and it won’t be surprising if we hit slightly higher.”

This compares with output of 19.3 million tonnes last year.

From January to October production totalled 16.52 million tonnes, about 4% above the 10-year average of 15.81 million tonnes.

Meanwhile, the country’s end-October palm oil stockpile stood at 2.46 million tonnes, up 4% month-on-month and 31% year-on-year, marking the eighth consecutive monthly increase.

Ahmad Parveez said the current stock of around 2.5 million tonnes was “a bit alarming” but likely temporary.

“It’s mainly due to higher production. We’ve also seen a big jump in exports this month as buyers, especially in China and India, begin stocking up ahead of the year end,” he said.

Despite stronger exports, palm oil prices have eased from recent highs.

Prices have slipped to about RM4,100 per tonne from RM4,500 a month ago.

As of press time, soybean oil traded at 50.85 US cents per pound, equivalent to about US$1,120 (RM4,640) per tonne – around 13% higher than CPO.

On prices, Ahmad Parveez said several factors could influence CPO movements in the months ahead, including supplies of other edible oils, biodiesel demand and Indonesia’s production trends.

He added that MPOB views RM4,000 per tonne as a reasonable price level for now.

At the same time, the board is focusing on replanting efforts to sustain yields and ensure sufficient long-term supply to meet potential demand growth.

“We are pushing for the government to help with replanting, especially for smallholders, with some grants or support. We hope that will help us if demand continues to increase,” he said.

On the outlook for next year, Ahmad Parveez said more data from November and December would provide a clearer picture of production trends.

Meanwhile, Kenanga Research, in a recent report on the plantation sector, said valuations of plantation stocks have “crept up but are far from excessive”, with a price-to-book multiple of 1.1 times and price-earnings multiple of 15 times.

On this, a fund manager said expectations in the sector have moderated despite strong earnings.

“Recently, there is just some speculation or expectation that there will be some merger and acquisition activity in the sector.

“But if you look at valuations of about 15 times price-earnings, it has come down a lot, given some environmental, social and governance (ESG) concerns.

“Also, because of the retracement of some CPO prices,” he said, adding that 10 years ago these stocks used to trade at above 24 times price-to-earnings.

He noted that growth remains largely driven by demand from China and India.

Meanwhile, an industry observer said the market still underestimates plantation stocks.

“Historically, the plantation stocks have underperformed the market until late last year. Only in the second half of this year did they start to show some outperformance,” she said.

She added that supply growth in Malaysia is limited because, as estates are ageing, there is little new planting and labour can be an issue.

“Supply is not going to be significantly higher over the next few years. Bear in mind, it takes three years for any new estates to reach maturity,” she said.

Despite these constraints, she said earnings have been strong, supported by higher CPO prices and Indonesia’s biodiesel mandate, which helps sustain demand.

The observer also highlighted efforts to improve ESG practices, pointing to SD Guthrie Bhd scoring top spot in the annual SPOTT palm oil assessment.

“It shows the industry has been improving transparency and traceability over time,” she said.

Developed by the Zoological Society of London, SPOTT scores palm oil, tropical forestry, and natural rubber companies annually against over 100 sector-specific ESG indicators to benchmark their progress over time.

She added that planters are exploring ways to unlock additional value from unproductive land, including leasing for industrial use or solar energy projects, which could enhance both earnings and ESG perception.

On 2026’s production, she said yields are expected to remain steady, with low single-digit growth possible, assuming weather and labour conditions are favourable.

Commenting on the outlook, Kenanga Research said the strong output in October “suggests a probable” peak.

“Year-to-date, CPO price came to RM4,357 per tonne – still firm but has started to soften in November and then expected to ease further in 2026 from recovering European rapeseed and sunflower output.” it said.

It has kept its average CPO forecast of RM4,300 per tonne for this year and RM4,000 for 2026.

The research house maintained a “neutral” stance on the plantation sector, saying elevated selling prices, flat costs and decent harvests should translate into good performance for the year, though prices may soften next year.

TA Research highlighted the potential impact of the US–China soybean trade on palm oil.

“Talks between US President Donald Trump and Chinese President Xi Jinping at the Apec Summit in Busan signalled efforts to normalise agricultural trade, with China agreeing to resume purchases of US soybeans,” it said, adding that US Treasury secretary Scott Bessent indicated that China had pledged to import 12 million tonnes of US soybeans by end-2025 and 25 million tonnes annually between 2026 to 2028.

TA Research noted that the pledges are still below pre-trade-war levels of over 30 million tonnes.

It added that China’s 2025 and 2026 soybean requirements have largely been met by South American suppliers, with Brazil and Argentina supplying about 72 million tonnes.

“The resumption of US-China soybean trade could increase the supply of soybean oil, a byproduct of soybean crushing, which may in turn limit demand for CPO as a substitute vegetable oil, in our view,” it said.

“Nevertheless, we believe that near-term CPO price declines may be cushioned by Indonesian biodiesel demand and seasonal monsoon-related supply disruptions, which could constrain supply.”

TA Research maintained a “neutral” stance on the plantation sector, expecting CPO to average RM4,000 per tonne in 2026, moderated by higher production, softer export demand, and competition from other edible oils.