9 July 2025

Plantation

More Even Fundamentals; Geopolitical Risks Remain

Regional Sector Update

Agriculture | Plantation

Neutral (from Overweight)

• Downgrade to NEUTRAL from Overweight; Top Picks: Value plays – Johor Plantations (JPG), Sarawak Oil Palms (SOP), IOI Corp (IOI) and London Sumatra Indonesia (LSIP); situational plays – SD Guthrie (SDG) and First Resources (FR). We expect 2026 to be a more balanced year fundamentally, with lower YoY CPO prices, but geopolitical risks will translate to more volatility. We lower our CPO price assumptions and rejig our Top Picks.
• Spot CPO prices have moderated from MYR4,600-4,800/tonne in 1Q25 to a low of MYR3,780/tonne in May, only to bounce back to the current levels of MYR3,900-MYR4,100/tonne. The downward movement was mainly driven by geopolitics in the light of the US trade tariffs, wars, and crude oil prices falling – all of which pushed CPO prices in the same direction.
• Correlation between CPO prices and crude oil prices surged to 0.47 in Apr 2025 from -0.6 in 1Q25, and subsequently rose further to current levels of 0.68, due to raised geopolitical risks. Besides following crude oil price trends, CPO prices also followed the lead of soybean oil (SBO) prices which rose due to the recent US biofuel policy change, leading to a rise in blending targets.
• What’s next for CPO prices? We expect CPO prices to remain volatile given the ever-changing geopolitical situation. Fundamentally however, global supply and demand will likely be more balanced in 2026F, as supply improves, while demand should pick up given the more attractive relative prices.
• Supply of 17 oils and fats complex is expected to improve YoY in 2026F, coming from a partial recovery of palm, sunflower and rapeseed supplies, as well as continued growth from soybeans. Still, the stock/usage ratio of the 17 oils and fats complex is still expected to remain below the historical average of 13.6%, at 12.9% for Oct 2025F/Sep 2026F, albeit up from 12.7% in 2025F. This leaves very little cushion in case of any short-term bullish supply or demand surprises, hence raising the risk of price volatility going forward.
• What does this mean for relative prices of vegetable oils and demand? Ignoring the noises from geopolitics, we expect 2026F to see: i) Muted soybean prices, due to continued strong supply in 2026F; ii) SBO prices remain supported at higher levels, due to the higher demand from increased US biofuel blending; iii) CPO prices to continue trading at a discount to SBO in the medium term (currently at USD217/tonne discount); and iv) demand from price sensitive countries like India, Pakistan, Bangladesh come back.
• We revise down our CPO price assumptions to MYR4,100/tonne (from MYR4,300) for 2025 and to MYR4,000/tonne (from MYR4,100) for 2026 and 2027; but revise up our PK prices to MYR3,300/tonne for 2025F (from MYR2,800) and to MYR3,200/tonne for 2026F and 2027F (from MYR2,600).
• Downgrade to NEUTRAL. Post annual ESG review, we have made several changes to our ESG scores and rolled forward our valuation targets to 2026 (from 2025). All in, we downgraded two stocks to NEUTRAL – Kuala Lumpur Kepong (KLK) and Bumitama Agri (BAL), post earnings revision. We now have six BUYs and seven NEUTRALs. Our BUYs are now mixed – with a focus on value plays (JPG, SOP, IOI and LSIP) and situational plays (SDG and FR).

Analysts

Hoe Lee Leng
+603 2302 8110
hoe.lee.leng@rhbgroup.com

Iftaar Hakim Rusli
+603 2302 8114
iftaar.hakim.rusli@rhbgroup.com

Singapore Research
research.sg.equity@rhbgroup.com

Indonesia Research
+6221 5093 9888
rhb.id.research@rhbgroup.com

CPO vs Brent crude oil vs SBO (indexed comparison)

Chart showing the indexed comparison of Crude palm oil, Brent crude oil, and Soybean oil from 9/2/2024 to 6/29/2025.

Source: Company data, RHB

Source: Company data, RHB

See important disclosures at the end of this report

9 July 2025

Geopolitical risks aplenty, but more even fundamentals

Spot CPO prices have moderated from MYR4,600-MYR4,800 per tonne in 1Q25, down to a low of MYR3,780 per tonne in May 2025, only to bounce back to the current levels of MYR3,900-MYR4,100 per tonne. The downward movement was predominantly driven by geopolitics in the light of the US trade tariffs, wars, and crude oil prices falling – all of which pushed CPO prices in the same direction.

Correlation between CPO prices and crude oil prices surged to 0.47 in Apr 2025 from -0.6 in 1Q25 (pre-Liberation Day), and subsequently rose further to current levels of 0.68, due to more geopolitical risks in the form of escalating wars. In the last five weeks, crude oil prices rose to USD79 per bbl from a low of USD61 per bbl (early May), with CPO prices following a similar pattern. Besides this, CPO prices was also following the lead of SBO prices which rose due to the US biofuel policy change announced on 12 Jun, which proposed an increase in total biofuel blending volumes to 24.02bn gallons in 2026 and 24.46bn in 2027, (up from 22.33bn in 2025). This is positive for soybean produced in the US as a feedstock for biofuel, but may not be positive for Canadian canola oil, as The US Environmental Protection Agency (EPA) has also proposed a 50% reduction in the number of renewable identification numbers (RINs), for imported renewable fuels and fuels produced with foreign feedstocks. This means Canadian canola-oil demand from the US would be reduced as a result, resulting in more canola oil supply in the market. Currently, the US takes up more than 30% of Canada’s canola oil exports.

Figure 1: The POGO spread has slightly narrowed to USD42/bbl on average in June vs USD45/bbl in May

Chart showing Gasoil price, Brent crude oil price, CPO price, and POGO spread from 1/4/2016 to 1/4/2025.

Source: Bloomberg

Figure 2: CPO vs Brent crude oil prices

Chart showing CPO and Brent crude oil prices from 9/2/2024 to 6/2/2025, highlighting periods of negative and positive correlation.

Source: Bloomberg

What’s next for CPO prices?

We expect CPO prices to continue to be remain volatile given the ever-changing geopolitical situation. However, fundamentally, we highlight that global supply and demand is expected to be more balanced in 2026F, as supply should improve, while demand should also pickup in light of the more attractive prices now.

Supply of 17 oils and fats complex is expected to improve YoY in 2026F, coming from a partial recovery of palm output and from sunflower and rapeseed supplies, as well as continued growth from soybeans. However, the overall stock/usage ratio for the composite 17 oils and fats complex is still expected to remain below the historical average of 13.6%, at 12.9% for Oct 2025/Sep 2026F, albeit up from 12.7% in 2025F. This leaves very little cushion in case of any short-term bullish supply or demand surprises, hence raising the risk of price volatility going forward.

See important disclosures at the end of this report

9 July 2025

Figure 3: Palm oil production forecasts

Source: Oil World

Figure 4: 10 oilseeds supply and demand

(a)Stocks in % of annual disappearance. (b)Shelled basis. Source: Oil World

Within this complex however, the supply of the 10 oilseeds complex remains robust, driven by from strong soybean output in South America and improving sunflower seed supply in Russia/Ukraine. The latest Oil World forecasts project the stock/usage ratio for the 10 oilseeds to rise to 22.2% in 2025F-2026F (from 22% in 2024-2025F), still above the historical average of 19.1%. For soybeans in particular, the stock/usage ratio is anticipated to rise to 30.5% in 2025F (from 30% in 2025F), above the historical average of 27.3%. This should translate to keeping prices of soybeans muted in 2026F.

Figure 5: Stock/usage ratios of 17 oils & fats and 10 oilseeds

Chart showing the stock/usage ratio of 17 oils & fats and 10 oilseeds from 10/11 to 25/26F.

Source: Bloomberg

Figure 6: Stock/usage ratios of 8 vegetable oils, PO and SBO

Chart showing the stock/usage ratios of 8 vegetable oils, Palm Oil (PO), and Soybean Oil (SBO) from 06/07 to 25/26F.

Source: Indonesia Biofuel Producer Association

Despite robust supply of oilseeds, the stock/usage ratio of the 8-vegetable oil complex remains relatively tight, due to the still tight supply of palm oil, and still low levels of crushing activities of soybeans. While more SBO can be easily extracted by crushing more beans, this will result in higher soymeal output, which will need to be utilised. Currently, soymeal demand remains weak due to weak feed demand for the hog industry in China and the cattle industry in the US. As such, while the stock/usage ratio of the 8-vegetable oil complex is expected to rise slightly to 13.6% in 2026F (from 13.3% in 2025F), it will remain below the historical level of 14.4%.

We would need, however, to monitor the development of US soybean crushing, given the recent change in the US biofuel policies which would favour domestic feedstock in US production of biodiesel/hydrotreated vegetable oil (HVO). What this means is that more US soybeans would need to be crushed to produce SBO to be utilised as biofuel feedstock. Based

See important disclosures at the end of this report

9 July 2025

on the increase in biomass-based diesel mandate for 2025, the US would require an additional 2.2-2.7m tonnes of SBO pa.

However, with more crushing, there will also be a corresponding increase in soymeal produced, likely exceeding demand in the US. This will likely result in a need to increase US soymeal exports in 2026F, creating competition from other soymeal exporters like Argentina, and pressuring soymeal prices.

Figure 7: New US biofuel mandate

Source: EPA

Figure 8: US soybean supply and demand

Source: Oil World

Indonesia to increase mandate to B50?

Besides the increased demand for SBO in the US for biofuel, we would also need to watch out for Indonesia’s plan to increase its biodiesel admixture to B50 (from B40). As at mid-2025, there has been no update as to the production or distribution of biodiesel in Indonesia for 2025. However, based on media reports by the Indonesian Palm Oil Association (GAPKI), production could be behind schedule as at YTD-April, as biodiesel distributed is only at 4.3m kL (+3.6% YoY). Assuming B40 is fully met in Indonesia in 2025, this would translate to a 12% YoY rise in biodiesel output, utilising c13.5m tonnes of CPO (+18% YoY). Should the mandate be increased to B50, this would mean a total of 18m tonnes of CPO to be utilised for 2026F.

Our base case assumption is for B40 to be maintained in 2026, as we believe the Indonesian Government would be hard pressed to ensure that this does not result in inflationary pressure for the country. Should B50 be implemented, domestic PO demand would rise further and PO exports from Indonesia would shrink to 21m tonnes (from 27m tonnes projected for 2025F), which would likely result in higher global CPO prices, thus raising domestic cooking oil prices. There is also a need to ensure there is enough biodiesel capacity to produce B50 – end-2025F capacity of 21m tonnes would need to be raised to 23.5m tonnes to produce at B50 levels.

Figure 9: Simulation of B50 output vs PO exports

Chart showing a simulation of B50 implementation, export, and subsidy in 2025-2029.

Source: GAPKI

Figure 10: Biodiesel production (+6% YoY) and distribution in Indonesia (+8% YoY) in 2024

Bar chart showing biodiesel production and distribution in Indonesia from 2019 to 2024.

Source: Indonesia Biofuel Producer Association

See important disclosures at the end of this report

9 July 2025

What does all this mean for relative prices of vegetable oils and demand?

Ignoring all other noises and reactions from geopolitics, we expect to see these few things happening in 2026F:

1. Soybean prices could remain muted, due to the strong soybean supply anticipated to continue in 2026F;
2. But SBO prices could remain supported at higher levels, particularly in the US, due to support from biofuel policies and the subsequent increase in demand anticipated;
3. As a result, CPO prices, now trading at a discount to SBO, are likely to remain at a discount in the medium term;
4. With CPO prices remaining at a discount to SBO, demand from price sensitive countries like India, Pakistan, Bangladesh etc should come back.

Figure 11: CPO vs other vegetable oils

Chart showing prices of Soybean Oil, Palm Oil, Rapeseed Oil, and Sunflower Oil from 12/1/2023 to 6/1/2025.

Source: Bloomberg – note that prices here refer to the FOB spot price

Figure 12: CPO is now trading at a USD217/tonne discount to SBO (from USD182/tonne discount on average in May 2025)

Chart showing the price of Soyoil (USD) and CPO (USD), and their premium/discount, from Jan-20 to Jan-25.

Source: Bloomberg

In the short term, demand from India and Bangladesh should come back. Currently, India’s end-May 2025 palm oil stock levels are at 29% below the historical average (vs -35% in April). Should CPO prices remain at a discount to SBO prices (currently at USD217/tonne) for the rest of the year and into 2026, we should see stronger demand for PO coming from India. This can already be seen for May 2025, whereby India’s PO imports have increased 85% MoM, bringing YTD-May 2025 PO imports to -38%, an improvement from YTD-Apr 2025 of -43%. As for China, its PO stocks remained low at 42% below the historical average at end-May, mainly due to ample stocks of SB and SBO in the country. Bangladesh’s PO stock levels are also low, at 42% below historical average as at end-May, while Pakistan’s stocks levels are at 4% above the historical average during the same period.

Figure 13: China’s palm oil stocks decreased to 42% below the historical average as at end-May 2025 (vs -39% at end-Apr 2025)

Chart showing China’s total ending stocks (MT) from 2020 to 2025.

Source: Malaysian Palm Oil Council (MPOC)

Figure 14: India’s PO stocks improved to 29% below the historical average at end-May 2025 (vs -35% at end-Apr 2025)

Chart showing India’s total ending stocks (MT) from 2020 to 2025.

Source: MPОС

See important disclosures at the end of this report

9 July 2025

Conclusion

All in, we believe that demand for PO will remain supportive in 2026F, while supply will improve, barring any unforeseen weather issues. This means that prices for CPO will likely not vary too greatly in 2026 from 2025 levels. For 2025, YTD prices are currently at MYR4,390 per tonne per tonne. Assuming CPO prices remain in the range of MYR3,700-4,100 per tonne for the rest of the year, we believe prices may fall slightly short of our original MYR4,300 per tonne average forecast. As such, we bring down our CPO price forecasts to MYR4,100 per tonne for 2025, and to MYR4,000 per tonne (from MYR4,100 per tonne) for 2026 and 2027. We also adjust upwards our PK price assumptions, given the current tight lauric oil market, which has resulted in YTD prices rising 49% YoY to MYR3,489 per tonne. As such, we have raised our PK price forecasts to MYR3,300 per tonne for 2025 (from MYR2,800) and to MYR3,200 per tonne for 2026 and 2027 (from MYR2,600).

Risks

The main downside risks to our outlook include:

1. Intensifying geopolitical risks;
2. Significant changes in the crude oil price trend, which may result in changes to biodiesel mandates;
3. Weather abnormalities resulting in an oversupply or undersupply of vegetable oils;
4. Significant changes in the demand for vegetable oils, caused by changes in economic cycles or price dynamics;
5. Revision in Indonesia’s tax structure, trade policies and biodiesel mandates;
6. Revision in US biofuel policy or delays in implementation; and
7. More ESG issues.

See important disclosures at the end of this report

RHB Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months

Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain

Neutral: Share price may fall within the range of +/- 10% over the next 12 months

Take Profit: Target price has been attained. Look to accumulate at lower levels

Sell: Share price may fall by more than 10% over the next 12 months

Not Rated: Stock is not within regular research coverage

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**The disclosure is limited to Research staff of PT RHB Sekuritas Indonesia only.

Singapore

Save as disclosed in the following link RHB Research Conflict Disclosures Jul 2025 and to the best of our knowledge, the Singapore Research department of RHB Bank Berhad (through its Singapore branch) hereby declares that:

1. RHB Bank Berhad, its subsidiaries and/or associated companies do not make a market in any issuer covered by the Singapore research analysts in this report.
2. RHB Bank Berhad, its subsidiaries and/or its associated companies and its analysts do not have a financial interest (including a shareholding of 1% or more) in the issuer covered by the Singapore research analysts in this report.
3. RHB Bank Berhad’s Singapore research staff or connected persons do not serve on the board or trustee positions of the issuer covered by the Singapore research analysts in this report.
4. RHB Bank Berhad, its subsidiaries and/or its associated companies do not have and have not within the last 12 months had any corporate finance advisory relationship with the issuer covered by the Singapore research analysts in this report or any other relationship that may create a potential conflict of interest.
5. RHB Bank Berhad, or person associated or connected to it do not have any interest in the acquisition or disposal of, the securities, specified securities based derivatives contracts or units in a collective investment scheme covered by the Singapore research analysts in this report.
6. RHB Bank Berhad’s Singapore research analysts do not receive any compensation or benefit in connection with the production of this research report or recommendation on the issuer covered by the Singapore research analysts.

Analyst Certification

The analyst(s) who prepared this report, and their associates hereby, certify that:

(1) they do not have any financial interest in the securities or other capital market products of the subject companies mentioned in this report, except for:

(2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

KUALA LUMPUR

RHB Investment Bank Bhd
Level 3A, Tower One, RHB Centre
Jalan Tun Razak
Kuala Lumpur 50400
Malaysia
Tel: +603 2302 8100
Fax: +603 2302 8134

JAKARTA

PT RHB Sekuritas Indonesia
Revenue Tower, 11th Floor, District 8 – SCBD
Jl. Jendral Sudirman Kav 52-53
Jakarta 12190
Indonesia
Tel: +6221 5093 9888
Fax: +6221 5093 9777

SINGAPORE

RHB Bank Berhad (Singapore branch)
90 Cecil Street
#04-00 RHB Bank Building
Singapore 069531
Fax: +65 6509 0470