Kuala lumpur: Return on equity (ROE) for the plantation sector is projected to remain robust through 2026-2027, bolstered by firm crude palm oil (CPO) prices due to supply tightness and ongoing geopolitical tensions in West Asia, as stated by Kenanga Investment Bank Bhd (Kenanga IB).

According to BERNAMA News Agency, Kenanga IB highlighted in a research note that the sector has experienced an upward trend since 2019. The conflict in West Asia has contributed to increased demand for biodiesel, subsequently driving CPO prices from RM4,019 per tonne in January to between RM4,500 and RM4,700 in April. The investment bank maintains its CPO price assumptions of RM4,250 per tonne for 2026 and RM4,200 for 2027, suggesting that the rise in CPO prices will more than compensate for higher input costs like fertiliser and fuel.

Kenanga IB noted that elevated edible oil prices have remained sticky due to supply constraints, with palm oil, the most productive oil crop, witnessing significantly slower area expansion. Despite growing demand, yields from other oil crops have not improved quickly enough to fill the gap. Although opening inventories this year exceeded expectations following a robust harvest, global edible oil supply is anticipated to remain tight for 2026 to 2027, even without considering the West Asia conflict. Supply growth is struggling to keep pace with demand, resulting in only marginal inventory gains.

The bank further explained that supply growth has decelerated to approximately two per cent from four per cent since 2018, hindered by weaker palm oil expansion and Indonesia's moratorium on new oil palm planting permits. The impact of tighter supply on edible oil prices is evident in the Food and Agriculture Organisation Food Price Index, which tracks global prices of commodities such as meat, dairy, cereals, and sugar. Edible oil prices have surged the most since 2019, showing increases two to three times more than those of other food commodities, a trend expected to persist in the coming years.