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Focus Malaysia
12-08-2025
- Business
- Focus Malaysia
Malaysia's palm oil output tops 10-year average, but market remains cautious
YEAR-TO-DATE production of 10.77 mil MT is running at 4% above the 10-year Malaysia Jan−Jul output of 10.35 mil MT. However, the stronger-than-average trend in output is in line with expectations. Oilworld is expecting 19.3 mil MT of palm oil from Malaysia in calendar year 2025 (CY25), while the USDA is forecasting 19.4 mil MT and Kenanga is estimating 19.2 mil MT, all above the historical 10-year average of 19.0 mil MT. Typically, global edible oil price corrects by about 4% quarter-on-quarter (QoQ) in 3Q, and then recover in 4Q. Historically, Malaysian crude palm oil (CPO) prices also softened in 3Q by 7% QoQ but so far, July CY25 CPO price has held steady. 'We attribute this to the more-than-usual dip in 2Q CY25 palm oil prices after trading at premium to soyabean oil for seven months in CY24 then into 1QCY25 as well,' said Kenanga. Edible oil supply is expected to improve by only 1−2% in CY25 whereas trend-line demand growth is closer to 3−4% YoY. As such, edible oil prices, including palm oil prices, are expected to stay relatively firm in order to contain demand growth below trend line. Supply outlook for CY26 is better but only slightly. With a forecast YoY increment of 2−3% in supply, CY26 closing inventory should stay flat or nudged up a little (2−3%) as elevated prices temper down demand. However, the overall supply-demand scenario remains tight with little room to accommodate supply disruption from poor weather, supply-chain or geopolitics. Softer CPO prices should weigh down upstream margins but overall cost pressure is tempered somewhat by elevated PK prices which are still stronger by 45% YoY even after correcting in June. Meanwhile, PKO price discount to rival coconut oil has widened again on tight coconut supply due to dry weather. While the direct impact of US tariff is limited as palm oil-based fatty acids are exempted, the lingering uncertainties and worries over slower economic activity are limiting order size and nearer term deliveries. 2Q CY25 plantation earnings are expected to soften but only slightly, so healthy profits can still be expected on expected CPO prices of RM4,100 and RM4,000 per MT over CY25−26 respectively. There is no strong upside catalyst, thus our NEUTRAL weight for the sector. —Aug 12, 2025 Main image: The Edge
Focus Malaysia
02-07-2025
- Business
- Focus Malaysia
Demand for edible oils remains resilient and predictable
THE top palm oil producer, Indonesia, suffered poor yields in calendar year 2024 (CY24) causing palm oil prices to trade above soyabean oil for over half the year during CY24. 'As harvest is recovering this year, palm oil prices have since reversed to trade at discount against soyabean oil from Apr CY25 onwards,' said Kenanga Research. Consequently, CY25 crude palm oil (CPO) prices should ease from RM4,212 per MT in CY24 to RM4,100 in CY25 and RM4,000 in CY26 but stay firm due to overall supply tightness in the international edible oil market. A CY25 supply deficit looks increasingly likely with tightness to spill over into CY26. Oilworld's latest edible oil supply growth forecast of 2% for CY26 concurs with Kenanga's earlier view that trend-line demand growth of 3%-4% a year looks set to outstrip supply not only in CY25 but into CY26 as well unless a bumper harvest eventually emerged. Hence, our expectation of firm to elevated edible oil prices over CY25-26. Once the fastest growing oil crop, palm oil output growth started to moderate from around CY19 onwards. This is in part, due to ESG concerns over de-forestation but Indonesia was also starting to run out of good suitable land for oil palm planting while Malaysian oil palm area actually started shrinking since CY20s. Whilst valuations appear to have bottomed out and are not excessive, there is no strong upside catalyst either. Therefore, our NEUTRAL call thus hinges on firm CPO prices. Approximately 70% of edible oil made it into our food chain with c.23% as bio-fuel. As such, edible oil demand is quite visible, resilient and with trend-line demand growth of 3%-4% yearly. Meanwhile, supply is expected to grow by only 2%-3% over CY25-26; hence, edible oil prices including that of palm oil will probably stay sufficiently firm. Overall, we expect non-integrated planters to become increasingly dividend-yield plays. For larger integrated players, we expect more M&A or diversification into non-plantation businesses – hence likely to stay net borrowers. Even so, as the balance sheet of integrated players such as IOI, KLK and SDG are backed by valuable land bank, their current gearings levels should not be a key concern to investors. Margins should stay healthy. Firm CPO and strong PK selling prices are expected to help absorb most of the cost upticks in CY25; hence, upstream margins are expected to stay healthy. Downstream margins which stayed disappointingly soft in 1QCY25 is likely to remain so for the next quarter or two. Altogether, CY25 margins should stay robust thanks to upstream operations. —July 2, 2025 Main image: Palm Oil Alliance
