Stable Outlook and Favorable Market Dynamics
Public Investment Bank Bhd is maintaining a neutral outlook on the plantation sector, underpinned by its forecast that crude palm oil (CPO) prices will remain stable through the second half of 2025. The research house projects prices to trade within a range of RM4,000 to RM4,300 per tonne, with a full-year forecast of RM4,200. This steady projection is supported by several key market fundamentals, including the stabilization of CPO inventory levels, which now exceed two million tonnes, and a notable improvement in export momentum. A primary driver of this renewed demand is the price competitiveness of palm oil against rival soybean oil, especially in major markets like India, where inventory levels are currently low. Given this promising outlook, the bank has identified Sarawak Plantation and Ta Ann as its top picks within the sector, citing their attractive dividend yields of five to six percent as a key incentive for investors seeking consistent returns.
Policy and Environmental Factors Influence the Sector
The plantation sector is navigating a complex landscape of policy developments and environmental concerns that could influence its trajectory. On the policy front, Indonesia’s B40 biodiesel program is progressing as planned, which is expected to boost long-term demand for palm oil as a crucial biofuel feedstock. However, a significant environmental risk looms large, with a notable increase in fire hotspots observed in Sumatra and Kalimantan. If dry weather persists, this could lead to the recurrence of transboundary haze, a major concern for the region. The report also highlights challenges for Malaysia’s oleochemical segment, which is grappling with subdued demand and persistent price volatility. This is further complicated by a strengthening ringgit, which negatively impacts revenue for exporters. While a newly imposed 25 percent US tariff on Malaysian palm oil products is not expected to have a material impact, the proposed expansion of biofuel mandates in the US could indirectly benefit palm oil by driving up soybean oil prices.
Cost Management and Future Projections
Despite the operational pressures experienced in the first half of the year from factors such as higher minimum wages and rising fertilizer costs, the sector is anticipating lower production costs in the coming months. This improved efficiency is expected to be a result of increased fresh fruit bunch yields and greater palm kernel credits, which will help to offset earlier cost burdens. Furthermore, a new regulatory change—the mandatory two percent Employees Provident Fund contribution for foreign workers starting in October—is expected to have a minimal impact on overall labor costs, reducing them by less than one percent. Public Investment Bank’s analysis underscores a fundamental resilience in the sector. Despite various headwinds, the combination of a stable price outlook and favorable demand dynamics supports a neutral stance, suggesting that the industry is well-positioned to navigate current challenges and maintain a steady course.
