PETALING JAYA: High crude palm oil (CPO) prices are likely to be sustained through the first quarter (1Q) of this year, driven by seasonally weak production, increased biodiesel mandates in Indonesia, and higher restocking activities ahead of Ramadan.
According to Hong Leong Investment Bank (HLIB) Research, CPO prices are expected to remain between RM4,500 and RM5,000 per tonne for the first three months of 2025 before retreating thereafter.
“We believe CPO price will hover at around RM4,500-RM5,000 per tonne over the next few months and retreat post-1Q25, due to several reasons, including palm’s price premium over other competing vegetable oils not sustaining over the longer term, more favourable palm supply prospects in 2025, and the possibility of a slower-than-expected full implementation of the B40 biodiesel mandate in Indonesia,” the brokerage stated in its report yesterday.
HLIB Research maintained its 2025-26 CPO price assumptions at RM4,000 per tonne and RM3,800 per tonne, respectively, while reiterating a “neutral” stance on the plantations sector.
CPO prices have seen a robust rally, rising more than 15% since October 2024.
This has brought the average CPO price for 2024 to RM4,230 per tonne, compared with RM3,832 in 2023. The surge was driven primarily by concerns over weaker production in Malaysia and Indonesia, stemming from the lagged effects of El Niño, seasonal cropping patterns, and unusually high rainfall.
“The Indonesian government’s commitment to raise its biodiesel mandate by five percentage points to B40 from January 2025 onwards has also significantly boosted palm oil consumption, reducing stockpiles in the country,” HLIB Research noted.
This upward trend in CPO prices contributed to a 6.4% increase in the KL Plantation Index during the fourth quarter of 2024, outperforming the FBMKLCI by 7.2 percentage points.
HLIB Research expected the elevated price levels to persist through the first quarter of 2025 due to several factors.
“CPO price strength will likely sustain, backed by weak near-term production arising from seasonally low cropping patterns and unusually high rainfall in both Malaysia and Indonesia,” it explained.
Additionally, Indonesia’s biodiesel mandate is expected to bolster demand for palm oil, further reducing inventories. “More aggressive restocking activities ahead of the Ramadan month in March 2025 will also lend support to CPO prices,” it added.
However, the research house forecasts a retreat in CPO prices after the first quarter, citing improving supply prospects and shifts in demand dynamics.
“The current price premium of palm oil over competing vegetable oils is unlikely to sustain over the longer term, as high palm prices will result in demand rationing and encourage key vegetable oil-importing countries to switch to cheaper alternatives,” HLIB Research explained.
Moreover, the absence of significant weather disruptions in 2025 is expected to result in better palm oil production, further capping price gains.
HLIB Research also highlighted potential delays in Indonesia’s full implementation of the B40 biodiesel mandate, which could dampen some of the anticipated demand growth.
Despite the short-term price strength, it maintained its “neutral” stance on the sector, reflecting expectations of softer prices beyond 1Q25.
“Our current price projections are premised on normalised weather conditions, and even if La Niña occurs, it is likely to be mild and short-lived,” the report stated.
HLIB Research’s top picks for the sector included Johor Plantations Group Bhd, which it upgraded to a “buy” from “hold” previously, with a target price of RM1.35; Hap Seng Plantations Holdings Bhd, with a target price of RM2.44; and IOI Corp Bhd
, with a target price of RM4.30.
