Kuala lumpur: Kenanga Investment Bank Bhd (Kenanga IB) is raising its calendar year 2026 (CY2026) crude palm oil (CPO) price forecast by four per cent to RM4,400 per tonne from RM4,250 per tonne, citing the El Ni±o phenomenon.

According to BERNAMA News Agency, the investment bank also revised its CY2027 CPO price forecast upwards by six per cent to RM4,450 from RM4,200 per tonne. Historically, El Ni±o tends to lift CPO prices, with increases typically observed either in the second half of the year when El Ni±o begins, or more often, in the first half of the following year.

The bank noted that price changes vary considerably, from an initial quarter-on-quarter (q-o-q) dip to spikes of 10-40 per cent q-o-q in subsequent quarters. Overall, Kenanga IB believes a 5-10 per cent increase is reasonable for now, considering that CPO and palm kernel prices have already been elevated since the West Asia conflict.

Kenanga IB mentioned that while the impact is partially priced in, further upward revisions cannot be ruled out under a very strong El Ni±o scenario, including to valuation price-to-book multiples, which remain unchanged for now. A severe El Ni±o can curb palm oil output depending on sea surface temperature deviation from the norm.

The bank further explained that palm oil production is not affected unless it is a very strong El Ni±o, where prolonged dryness (six months or longer) can disrupt fruiting and flowering cycles. As El Ni±o usually starts in the second half, crop yields in the following year are more affected under a very strong El Ni±o. Globally, palm oil supply can swing from year-on-year (y-o-y) growth to a contraction of between two per cent and nine per cent, based on historical observations.