SDG: Palm Oil Sector Navigates Easing Inventories and Price Fluctuations

Malaysia’s palm oil sector experienced an easing of inventories in January, driven by robust export demand and domestic consumption. While crude palm oil (CPO) production saw a monthly dip, the industry anticipates near-term price stability and potential rebounds. This dynamic leads analysts to maintain a neutral outlook for the sector, balancing market forces and underlying challenges.

Performance Review: Inventories and Production Dynamics

Palm oil inventories in Malaysia decreased by 7.7% month-on-month (MoM) to 2.82 million metric tonnes (MT) in January 2026. This reduction was primarily attributed to an 8.2% MoM decline in CPO stocks and a 7.0% MoM drop in processed palm oil (PPO) stocks. The improved inventory drawdown was significantly bolstered by an 11.4% MoM increase in palm oil exports, reaching 1.48 million MT, with strong shipments directed to India and the Americas. Domestic consumption also contributed positively to the stock reduction.

Despite the encouraging MoM decline, inventories remained substantially higher year-on-year (YoY), up 78.1% from January 2025 levels. CPO production itself moderated by 13.8% MoM to 1.58 million MT in January, reflecting the seasonal low productivity phase across key growing regions. However, this figure still represents a robust 27.2% YoY increase, marking the highest January output in seven years, underpinned by improved yields and efficient estate management.

The average local-delivery CPO price eased slightly by 0.6% MoM to RM4,018.50/MT in January. This minor dip was attributed to higher Malaysian output and inventories, alongside Indonesia’s announcement to defer its B50 biodiesel implementation, a factor that had previously been partially priced into the market as a catalyst for increased demand.

Market Challenges and Future Outlook

Looking ahead, the pace of inventory drawdown could face moderation due to intensifying competition from Indonesian supplies and sustained global soybean crushing. Furthermore, the sustainability of the recent production recovery remains a concern given structural constraints such as aging tree profiles and long-term yield stagnation within the industry.

Despite these challenges, the sector is poised for inventories to trend lower as major buyers ramp up restocking efforts ahead of upcoming festivities, capitalizing on palm oil’s competitive pricing. Analysts expect CPO prices to find support in the RM3,800-3,900/MT range, with potential to rebound towards RM4,500/MT in the first quarter of 2026. This potential rebound is underpinned by the seasonal low crop cycle, festive demand from key markets like India, China, and major Muslim countries, and an improved palm oil-soybean oil discount, which enhances palm oil’s appeal in major import markets. Malaysia’s CPO production is projected to normalize to 19.8-19.9 million MT in 2026.

Analyst’s Assessment and Recommendations

Independent analysis from TA SECURITIES sets a BUY recommendation, with a target price of RM0.25, reflecting a 25.0% upside from the last traded price of RM0.20. This specific investment recommendation comes amidst a broader industry sentiment. Other analysts maintain a neutral outlook for the plantation sector in 2026, forecasting a CPO price assumption of RM4,200/MT, reflecting balanced supply-demand dynamics and ongoing market volatilities. For specific sector exposure, some firms prefer companies exhibiting scalable upstream profiles, disciplined cost structures, robust balance sheets, and growth opportunities.