• Unfavourable weather in February led to weaker FFB yields, though production is expected to improve in the latter half of the year. We introduce a CY26 CPO production forecast of 20.7m tonnes.
• Middle East tensions are likely to drive near-term CPO price volatility, with a 2QCY26 CPO price assumption of RM4,300.
• Sector stance revised to Neutral (from Overweight) while maintaining our CY26 CPO price assumption of RM4,200, reflecting weaker-than-expected prices in January and February.
February softness for CPO production at 1.28m tonnes. Total CPO production eased 19% MoM to 1.28m tonnes in February, with declines recorded across all regions. On a MoM basis, production in Peninsular Malaysia fell by 135k tonnes, followed by Sabah (-89k tonnes) and Sarawak (-67k tonnes). We believe this was due to wetter weather conditions in February, which resulted in weaker MoM FFB yields, with February’s yields at 1.14 compared with 1.38 in January. On a YoY basis, February production increased by 8%. Moving further into the year, we expect production to trend higher, with peak output typically occurring between September and October. We introduce our CY26 CPO production forecast of 20.7m tonnes. Based on this forecast, YTD output currently accounts for around 14% of our full-year expectation.
Palm oil exports softened due to seasonal factors. Palm oil exports fell in February to 1.13m tonnes from January’s 1.46m tonnes (-23%). On a YoY basis, monthly exports rose by 13% from 996k tonnes. After accounting for February’s shorter duration, we believe that the drop was due to seasonality, as February typically records MoM declines, historically. Looking ahead, we expect demand to recover more meaningfully in 2HCY26 as the Indonesian B50 mandate rolls out.
Stocks remained elevated in February amid weaker exports. February palm oil closing stocks stood at 2.7m tonnes, representing a 3.9% decline from January’s 2.8m tonnes. On a YoY basis, inventories rose 79% from the same month last year. Due to weaker exports in February, the stock-to-use (STU) ratio is estimated at 1.94x, up from 1.55x in January.
Developments in Indonesia’s biodiesel mandate. Indonesia’s biodiesel policy has remained fluid since the start of CY25. While the government maintained the B40 mandate and deferred the B50 mandate in January due to technical and funding constraints, it also raised export levies to support biodiesel financing. More recently, the spike in crude oil prices has reopened the possibility of an earlier B50 rollout from 2HCY26, provided energy prices remain elevated. The rationale is straightforward: higher crude prices narrow the palm oil–gasoil (POGO) spread and reduce the subsidy burden associated with implementing higher biodiesel blending mandates. However, we believe the base case remains a B50 rollout in 2HCY26, as an earlier implementation could increase subsidy burdens should oil prices retreat following potential geopolitical de-escalation.
Implications from higher oil prices. Rising oil prices should keep CPO prices supported as long as geopolitical tensions persist or expectations of supply disruptions remain elevated, even if the conflict does not materially escalate. We observe that CPO–Brent price correlations typically strengthen for several weeks during periods of energy shocks. With correlations still elevated, this dynamic could continue to provide near-term support for CPO prices.
Change to Neutral stance. We revise our sector outlook to Neutral amid ongoing geopolitical uncertainties and a more balanced demand–supply outlook. While production levels remain strong, demand is expected to recover gradually with the anticipated rollout of Indonesia’s B50 mandate in 2HCY26. For now, we maintain our HOLD calls on plantation stocks under our coverage, although we highlight dividend plays such as Hap Seng Plantations (HOLD, TP: RM2.00) and Sarawak Plantations (HOLD, TP: RM3.76), which offer attractive dividend yields of around 6%.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 3.903957 | 3.935381 |
| EUR | 4.541033 | 4.545818 |
| CNY | 0.569785 | 0.570391 |
| HKD | 0.498988 | 0.502508 |
| SGD | 3.066229 | 3.087922 |