Palm oil inventories poised to peak as CPO prices near turning point
Malaysian palm oil inventories are projected to hit their highest level in five years by October, following a sixth straight month of increases in September. Public Investment Bank Bhd (PublicInvest) attributes this surge to weaker demand from key markets like China, Europe, and the Middle East, as well as a shift toward cheaper Indonesian crude palm oil (CPO). August data underscored this trend, with Indonesia's palm oil exports rising 35% month-on-month, while Malaysia's exports declined.
PublicInvest anticipates that Malaysia's inventory cycle will begin declining in November, with a more significant reduction expected in mid-2027. This downturn is expected due to the lagged effects of El Niño on fresh fruit bunch (FFB) yields and CPO production. The firm believes that a sustained drop in inventories could set the stage for a rebound in CPO prices, which have averaged RM4,430 per tonne year-to-date and are projected to align with PublicInvest's full-year forecast of RM4,500 per tonne.
The bank maintains an "Overweight" rating on the plantation sector, citing potential disruptions from El Niño and strong crude oil prices. These factors could tighten global vegetable oil supply and bolster demand for palm-based biodiesel. Additionally, Indonesia's planned B50 biodiesel mandate is expected to boost domestic CPO consumption and reduce export availability, further supporting prices.
PublicInvest highlights Sarawak Plantation Bhd and Ta Ann Holdings Bhd as top picks, noting their attractive valuations, earnings growth potential, and strong positioning for an anticipated improvement in the CPO cycle.