HLIB expects tight supply to keep crude palm oil prices elevated in second half of 2026

Tighter availability supports the price outlook

Crude palm oil prices are expected to remain elevated throughout the second half of 2026 as tighter supply meets resilient demand, according to Hong Leong Investment Bank Research. DagangNews reported that the research firm maintained its overweight rating on the plantation sector and kept its average crude palm oil price assumptions at RM4,450 per tonne for 2026 and RM4,300 per tonne for 2027.

The forecast points to continued support for plantation earnings, although company performance will remain sensitive to movements in the commodity. HLIB estimates that every RM100-per-tonne change in its average crude palm oil price assumption would alter the earnings of plantation companies under its coverage by between 3% and 8%. The range highlights the importance of realized selling prices at a time when production trends remain uneven.

Production recovery remains uneven

The plantation companies covered by HLIB broadly met expectations during the second quarter of 2026. Five of the six companies delivered results in line with forecasts. Combined core profit for the sector increased by 1% from the previous quarter to RM861 million, supported by a seasonal recovery in fresh fruit bunch production and higher realized prices for palm products.

Fresh fruit bunch output, however, showed a mixed picture. Three of the six plantation companies covered by the bank recorded lower production during the quarter. HLIB attributed the declines to changes in harvesting patterns, while JPG was also affected by aggressive replanting. These constraints suggest that higher commodity prices will not translate evenly into volume growth or earnings across producers.

Dry weather and downstream demand

HLIB also flagged increasingly dry conditions since June due to the continuing El Niño phenomenon. The dryness has been more pronounced in Indonesia than in Malaysia. The bank said it was still too early to determine the effect on plantation productivity, but warned that drier weather could reduce fresh fruit bunch yields after a delay. For producers and buyers, the timing and scale of that impact will be important because Indonesia and Malaysia sit at the center of global palm oil supply.

Conditions are improving downstream, particularly in oleochemicals. HLIB said the segment recovered both quarter on quarter and year on year as supply-chain disruption in the petrochemical industry, linked to Middle East tensions, strengthened demand for oleochemical products. Competition from Indonesian producers remains challenging, but near-term demand is expected to benefit from restocking amid geopolitical uncertainty and ahead of implementation of the European Union Deforestation Regulation. Against that backdrop, HLIB retained IOI Corp Bhd and Hap Seng Plantations Holdings Bhd as its preferred sector picks, with target prices of RM5.10 and RM2.80, respectively.