KUCHING (Oct 14): Malaysia’s plantation sector outlook remains neutral as palm oil inventories reached a more than 10-year high in September 2026, while rising input costs pose risks to profit margins, according to Kenanga Research.

The research house said Malaysian Palm Oil Board (MPOB) data showed crude palm oil (CPO) production rose 16 per cent month-on-month and 15 per cent year-on-year to 2.117 million tonnes in September.

Cumulative production for the first nine months of 2026 reached 14.751 million tonnes, up two per cent year-on-year and six per cent above the 10-year average of 13.923 million tonnes.

However, exports fell 13 per cent month-on-month and 22 per cent year-on-year to 1.120 million tonnes, contributing to a sharp increase in inventories.

Closing palm oil stocks rose 24 per cent month-on-month and 49 per cent year-on-year to 3.511 million tonnes, the highest level in more than a decade.

Despite the increase in inventories and stronger seasonal harvesting, CPO prices remained at RM4,615 per tonne in September, up one per cent month-on-month and six per cent year-on-year.

It said CPO prices had corrected since early October but remained around RM4,500 per tonne, supported by rising biodiesel demand and expectations of lower supply in 2027 due to a strong El Niño.

The research house maintained its CPO price assumptions at RM4,500 per tonne for 2026 and RM4,700 per tonne for 2027.

“CPO prices are also expected to stay flattish until current high inventory starts to level off. At the same time, the risks of cost inflation eroding margins is on the rise,” it said.

The research house expects palm oil production to moderate further, forecasting Malaysia’s fresh fruit bunch (FFB) production to decline one per cent year-on-year to 20 million tonnes in 2026, compared with 20.28 million tonnes in 2025.

It attributed the expected decline to weaker yields and the early impact of prolonged dry weather associated with El Niño.

The research house also expects global palm oil supply to face pressure in 2027, with production potentially declining one per cent in Malaysia and two to three per cent globally.

It said prolonged dryness could affect fruit size and subsequently disrupt flowering patterns, weighing on yields over the following months.

However, rising operating costs remain a concern for plantation companies, with diesel and fertiliser prices increasing. Malaysia’s minimum wage is also set to rise 18 per cent to RM2,000 from June 2027.

The research house said higher costs, combined with lower fresh fruit bunch yields, could erode margins unless CPO or palm kernel prices exceed expectations as 2027 approaches.

For downstream businesses, the research house said regional overcapacity would continue to pose challenges despite downstream margins rising to six per cent in the second quarter of 2026.

It added that profits from non-plantation operations, excluding land disposal gains, were likely to materialise from 2028 onwards as property development and other projects begin contributing.

The research house maintained its neutral sector recommendation, citing elevated inventories, relatively flat CPO price expectations and increasing cost pressures.

Source : The Borneo Post