KUALA LUMPUR (March 11): Analysts flagged that rising fertiliser costs could weigh on plantation companies in the second half this year, even as crude palm oil (CPO) prices remain elevated.

In a note on Wednesday, MBSB Research said cost pressures could emerge in the second half of the year, particularly for upstream planters, from higher fertiliser costs following the spike in urea prices and elevated diesel-linked logistics costs.

MBSB Research also warned that downstream players may also face higher freight and insurance premiums.

Similarly, CIMB Securities said that while stronger CPO prices are positive for planters, “the benefit may be partly offset by rising fertiliser costs linked to higher energy prices”.

The research house noted that escalating Middle East tensions and the subsequent temporary closure of the Strait of Hormuz have pushed energy prices higher, lifting biodiesel economics and supporting palm oil prices.

 

“On Bursa Malaysia, CPO prices have risen 9.5% since Feb 27 (one day before the conflict) to RM4,428 per tonne, supported by stronger energy and US soyoil prices.

“As the current CPO price is above our 2026 forecast of RM4,000 per tonne, we see upside risk to our projection should the conflict and the closure of the Strait of Hormuz persist,” said CIMB Securities.

However, prolonged elevated energy prices could raise input costs and weaken global economic growth, potentially dampening palm oil demand, said CIMB Securities.

Similarly, RHB Research cautioned that “fertiliser supply would be affected and costs will also rise accordingly” should the conflict drag on, adding that fertiliser expenses account for about 20% to 30% of total palm oil production costs, while transport and logistics costs account for between 5% and 10%.

Despite the cost pressures, analysts generally expect CPO prices to stay firm this year, with most projecting prices to average around RM4,100 to RM4,250 per tonne.

Hong Leong Investment Bank, for instance, said it is maintaining its 2026 average CPO price assumption of RM4,200 per tonne. RHB Research also maintained its 2026 CPO price assumption of RM4,250 per tonne, and Apex Securities forecasts CPO to average around RM4,300 per tonne before normalising to RM4,200 per tonne for the remainder of the year.

Phillip Capital, however, sees potential for stronger palm oil prices, expecting a rebound towards RM4,500 per tonne, supported by the seasonal low crop cycle, festive-driven restocking demand, and improved relative pricing competitiveness of palm oil alongside elevated geopolitical risks.

For Maybank Investment Bank, it said the average CPO price is forecast at RM4,100 per tonne in 2026, with upside potential if crude oil prices remain above US$100 (RM392.30) per barrel and Indonesia makes its B50 biodiesel a reality.

“We opine sustained high crude oil prices may push Indonesia to accelerate its B50 plan to reduce import reliance and save on foreign exchange, lifting CPO demand and price,” said Maybank Investment Bank in a note.

Overall, the majority of the analysts maintain a ‘neutral’ stance on the sector, citing a more balanced supply-demand outlook and continued price volatility.

Apex Securities downgraded the sector to ‘neutral’ from ‘overweight’, citing ongoing geopolitical uncertainties and a more balanced demand-supply outlook.

Similarly, Phillip Research said its ‘neutral’ call reflects more balanced supply-demand dynamics amid continued price volatility and regulatory and geopolitical uncertainties.

Malaysia’s palm oil stocks fell 3.9% in February from the previous month to 2.7 million tonnes, the lowest level since October, according to the Malaysian Palm Oil Board (MPOB).

Palm oil inventories fell for a second month in February to the lowest in four months, as a seasonal drop in production outweighed slower exports and a surge in imports.

CPO production declined 18.6% from January to 1.28 million tonnes, while palm oil exports fell 22.5% to 1.13 million tonnes, the MPOB said.

At noon break on Thursday, the benchmark of palm oil futures for May delivery stood at RM4,453 per tonne on Bursa Malaysia Derivatives.

Source : theedgemalaysia.com