Kuala lumpur: Kenanga Investment Bank Bhd (Kenanga IB) has maintained its crude palm oil (CPO) price forecast of RM4,400 per tonne for 2026 and RM4,450 per tonne for 2027, pending the upcoming results season. The upcoming results season might reveal individual planters' hedges or guidance amid the possibility of a severe El Nino, the investment bank said in a note today.
According to BERNAMA News Agency, the bank noted that the US National Oceanic and Atmospheric Administration (NOAA) has once again raised the probability of a severe or 'very strong' category of El Nino. NOAA's August update put the likelihood at 'greater than 90 per cent' and warned of a potentially worst El Nino since the 1950s.
The investment bank highlighted an upside bias to both its current CPO and palm kernel (PK) price assumptions as well as forecasts and target prices. It explained that historically, unless it is a very strong El Nino with dryness lasting six months or longer, palm oil production is not affected. As El Nino usually starts in the second half of the year, it is the following year's yields that tend to suffer. However, unlike output, CPO and PK prices can react positively even to a moderate or strong category El Nino.
Kenanga IB pointed out that historically, price changes have varied considerably, from an initial quarter-on-quarter dip to a spike of 10 per cent to 40 per cent quarter-on-quarter in subsequent quarters. They believe a 5 to 10 per cent uptick is reasonable for now, considering CPO and PK prices have already been elevated since the West Asia conflict.
The bank stated it had raised its 2026 CPO price forecast by four per cent to RM4,400 per tonne from RM4,250 per tonne, and by six per cent for 2027 to RM4,450 per tonne from RM4,200 per tonne in June. They are partially pricing in a very strong El Nino scenario for now but further upward adjustments cannot be dismissed, including higher price-to-earnings ratio/price-to-book value that they have left unchanged.
Kenanga IB concluded that coupled with resilient food- and fuel-driven demand against higher supply disruption due to ongoing conflicts in Ukraine and West Asia as well as a very strong El Nino pending, there is still an upward bias ahead for the plantations sector, and an 'overweight' call for this sector is maintained. Among the top picks are IOI Corp Bhd (target price: RM4.65), Kuala Lumpur Kepong Bhd (TP: RM25.20) and United Malacca Bhd (TP: RM7).