Kuala lumpur: Hong Leong Investment Bank Bhd (HLIB) has raised its 2026 and 2027 average crude palm oil (CPO) price assumptions by RM100 per tonne to RM4,450 per tonne and RM4,300 per tonne.
According to BERNAMA News Agency, the investment bank indicated that these revised price assumptions account for the increased likelihood of an El Nino event and the introduction of Indonesia's B50 biodiesel mandate. The potential impact of an El Nino poses a risk to palm oil output, which in turn supports price increases. Although the effects of El Nino on palm oil production usually appear 12 to 24 months after the event due to moisture stress impacting fresh fruit bunches (FFB) yields, CPO prices tend to react much sooner.
HLIB noted that the market's forward-looking nature is reflected in the price adjustments, especially if the El Nino turns into a strong and prolonged event, leading to significant rainfall shortages in key production areas in Indonesia and Malaysia. Additionally, Indonesia's B50 biodiesel mandate, set to be implemented from July 1, 2026, is expected to create a significant demand for palm oil.
The investment bank explained that a higher biodiesel blend will increase the volume of palm-based biodiesel necessary for domestic diesel consumption, thus consuming a large share of Indonesia's palm oil production. If the B50 mandate is implemented as planned, it could potentially reduce the volume of palm oil available for export, tightening the global supply-demand balance.
HLIB also anticipates that the current CPO price levels will be sustained into the second half of 2026, with potential for further increases due to a combination of supply- and demand-side factors. The global palm oil market may remain structurally undersupplied if weather risks, fertilizer disruptions, and Indonesia's biodiesel policy align.
The bank maintained its 'overweight' stance on the sector and continues to support companies with predominantly upstream operations and greater exposure to Malaysian operations. These companies are perceived to have higher earnings leverage to CPO price strength and lower exposure to foreign regulatory and policy risks.