Plantation
Plantation Sector - Turning Up the Blend                          
Mon, 13-Oct-2025 08:56 am
by Steven Chong • Apex Research

  • CPO production eased to 1.84m tonnes (-0.7% MoM). We reckon that CPO production has peaked in August and expect growth to remain flattish in the coming months.

  • Indonesia’s adoption of B50 biodiesel mandate coupled with year-end wet weather condition is set to keep CPO prices firm in 2026.

  • Upgrade to Overweight (from Neutral) with a new CPO price assumption at RM4,350 (from RM4,250) for 2025 and RM4,300 (from RM4,000) for 2026.

 

CPO production took a breather in September. CPO production growth eased to –0.7% MoM in September, dragged by sustained weakness in Peninsular Malaysia estates (–5.3% MoM) following July’s strong rebound and August’s moderate increase. However, robust output growth in East Malaysia (+6.0% MoM) partially cushioned the decline. On a YTD basis, output growth inched up +0.3% YoY to 14.5m tonnes. We reckon that CPO production peaked in August and expect output growth to remain flattish in the coming months.

 

Palm oil demand recovered. Palm oil demand strengthened in September, with exports growth surging +7.8% MoM after a -0.3% MoM decline in August. We believe the rebound was primarily driven by stronger demand from China, reflecting aggressive restocking ahead of the Golden Week holiday in early October. Nevertheless, we expect exports to ease in October as buying momentum from China moderates following the elevated base in September.

 

Palm oil closing stocks pilling up. Palm oil closing stocks continue to expand to reach 2.36m tonnes in September. Inventories rose +4.2% MoM from 2.20m tonnes in August and surged +17.2% YoY from 2.01m tonnes in the same month last year. Meanwhile, the stock-to-usage ratio edged down to 1.8x from 2.0x, supported by strong export growth during the month. Looking ahead, we expect palm oil inventories to hover around current levels before gradually tapering downwards during November.

 

CPO prices inched up +1.0% MoM to close at RM4,372 in September. CPO prices in September came higher than our expectation despite the narrowing of soybean oil–palm oil price spread (Figure 5) and swelling CPO inventory (Figure 3). We believe this was largely due to growing optimism on Indonesia’s B50 mandate coupled with stronger export performance. As such, we have raised our 2025 assumption to RM4,350/tonne (from RM4,250/tonne) and 2026 forecast to RM4,300/tonne (from RM4,000/tonne). We expect CPO prices to remain firm in Nov–Dec due to seasonally lower output during the monsoon period. YTD, CPO prices averaged at RM4,350/tonne.

 

Indonesia biodiesel mandate will serve as key catalyst for 2026. Indonesia’s move to adopt the B50 biodiesel mandate is expected to be a significant catalyst for 2026. According to the Energy Ministry, implementing B50 would require 20.1m kilolitres (kl) of palm oil-based biofuel annually, compared to 15.6m kl under B40. This implies an incremental 4m tonnes of CPO demand, based on a conversion rate of 0.9 tonne per kl of biodiesel produced. The government is currently conducting road tests for the B50 blend, with targeted rollout by 2H2026. Meanwhile, authorities have not ruled out the possibility of introducing a B45 blend as an interim step, allowing a smoother transition ahead of the full-scale implementation of B50.

 

Upgrade to Overweight stance. We upgrade our sector outlook to Overweight (from Neutral) attributed to i) the future rollout of B50 biodiesel mandate from Indonesia and ii) palm oil supply to tighten from the upcoming monsoon season. We place the TPs of our stock coverage Under Review pending earnings and price adjustments. We continue to prefer integrated players such as Sime Darby Guthrie (UR, TP: RM5.50), supported by potential upside from landbank monetisation and industrial park development.

Recommendation: Overweight
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