InfoSAWIT, KUALA LUMPUR - The crude palm oil (CPO) market is entering a new phase characterized by high volatility, driven by escalating global geopolitical risks that threaten market balance recovery prospects for 2026. RHB Investment Bank Bhd (RHB Research) in its latest report indicated that a complex combination of rising armed conflicts, changes in U.S. biofuel policies, and global trade tariff dynamics are major burdens for CPO market stability.
As a result, RHB has downgraded its plantation sector recommendation from "Overweight" to "Neutral," despite expectations that global supply and demand will become more balanced next year. "Spot CPO prices have fallen from around RM4,800 per ton in the first quarter of this year to RM3,900–RM4,100 currently," RHB noted in its research report.
The price decline is primarily attributed to overlapping geopolitical factors, including U.S. tariff policies, prolonged global conflicts, and sharp corrections in global crude oil prices. RHB also observed a significant change in the correlation between CPO prices and Brent crude oil. While the correlation was negative at -0.6 in early 2025, it has now turned positive at 0.68, reflecting increased sensitivity of CPO prices to energy market movements.
Additionally, changes in U.S. energy policies prioritizing domestic biofuel feedstocks like soybeans have shifted demand away from imported vegetable oils such as Canadian canola, drastically altering the global vegetable oil demand landscape. Soybean oil prices remain high, driven by the expansion of U.S. biofuel blending mandates through 2027.
"Fundamentally, palm oil remains strong with improving supply prospects and increasing demand due to competitive pricing. However, geopolitical factors now serve as a 'wild card' that could trigger sudden price fluctuations," RHB stated.
Consequently, the average CPO price forecast for 2025 has been lowered from RM4,300 to RM4,100 per ton, with further declines expected in 2026 and 2027 to around RM4,000 per ton. In contrast, the forecast for palm kernel prices has been raised to RM3,300 per ton for 2025, up from RM2,800, as the lauric oil market tightens.
Despite signs of market stabilization, RHB cautioned that the risks of decline remain significant, including escalating geopolitical conflicts, changing crude oil price trends affecting biodiesel policies, extreme weather, and regulatory changes in major producing countries like Indonesia. "The risk of price volatility going forward is increasing," RHB noted, adding that investor sentiment towards plantation stocks is likely to remain cautious.
Interestingly, while CPO prices saw a rebound earlier this year, plantation company stock prices have not reflected a similar surge, indicating market concerns over external factors. Nevertheless, the sector is still viewed as a defensive choice amid global uncertainties. "As CPO prices correct from their peak, stock prices in this sector remain relatively stable, demonstrating the appeal of the plantation sector as a safe haven during turbulent times," RHB explained. (T2)
