TSH: Palm Oil Stockpiles Decline as Production Dips, Positive Outlook Maintained
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Malaysian palm oil stockpiles witnessed a second consecutive monthly decline in February 2026, dropping to 2.7 million tonnes from 2.8 million tonnes in January, aligning with Bloomberg consensus. This dip is largely attributed to a shorter working month and reduced production, although the overall sector outlook remains positive with an “OVERWEIGHT” rating.
Performance Review
Crude Palm Oil (CPO) production saw a significant month-on-month (MoM) slump of 18.5%, settling at 1.3 million tonnes in February. This decline was widespread across major producing regions, affecting Sabah (-22.6%), Peninsular Malaysia (-16.3%), and Sarawak (-19.3%). Despite the monthly reduction, year-on-year CPO output for the first two months of 2026 showed a robust 17.9% growth, benefiting from the absence of floods compared to the previous year. Similarly, palm exports also experienced a MoM fall of 22.5% to 1.1 million tonnes in February, with shipments to India notably tumbling by 32.7% MoM.
Global Production & Market Dynamics
The global outlook for CPO production in 2026F appears softer, with Oil World estimating Malaysia’s output at 19.5 million tonnes (down from 20.3 million tonnes in 2025) and Indonesia’s at 48.8 million tonnes (down from 49.6 million tonnes in 2025). Global soybean production is anticipated to remain flat at 426 million tonnes for 2025/2026F. India, a key importer, remains price-sensitive, with concerns that it might shift towards US soybean oil if palm oil prices are not attractive. However, in February, CPO maintained a competitive edge, being US$66/tonne or 6% cheaper than Argentinean soybean oil.
Future Outlook
Looking ahead, inventories are projected to continue their downward trend due to upcoming fasting season and Hari Raya festivities. CPO production is, however, expected to rebound in May following a dip in April. The investment bank maintains its average CPO price assumption of RM4,400/tonne for pure Malaysian planters in 2026F. Furthermore, rising US soybean oil prices, driven by climbing crude oil prices and an impending biodiesel blending mandate, are expected to provide supportive tailwinds for CPO prices, underpinning the sector’s positive trajectory.
