KUALA LUMPUR (Nov 11): Bursa Malaysia’s Plantation Index rose to a 29-month high on Monday, bucking the broader market decline, as analysts expect crude palm oil (CPO) prices to remain elevated into 2025 as supplies tighten, ahead of Indonesia's plan to implement biodiesel containing a mandatory 40% blend of palm oil-based fuel (B40) from January next year.

The Plantation Index closed 131.3 points or 1.72% higher at its near two-and-half-year high of 7,762.88 points. Year-to-date (YTD), the index has climbed nearly 11%.

Among its constituents, United Plantations Bhd (KL:UTDPLT) was the top gainer, up RM1.06 or 3.77% to settle at its all-time high of RM29.16, translating into a market capitalisation of RM12.14 billion. YTD, the stock has rallied 63%.

Kuala Lumpur Kepong Bhd (KL:KLK) closed 34 sen or 1.55% higher at RM22.34, emerging as the fifth top gainer on Bursa Malaysia. At RM22.34, the group was valued at RM24.55 billion. SD Guthrie Bhd (KL:SDG) climbed 14 sen or 2.81% to end the day at RM5.13, with a market value of RM35.48 billion, while Genting Plantations Bhd (KL:GENP) rose 10 sen or 1.85% to settle at RM5.51, valuing the group at RM4.94 billion.

Johor Plantations Group Bhd (KL:JPG) also closed nine sen or 7.14% higher at RM1.35, bringing the group a market capitalisation of RM3.38 billion, while Chin Teck Plantations Bhd (KL:CHINTEK) advanced seven sen or 0.86% to settle at RM8.17, for a market capitalisation of RM746 million. Hap Seng Plantations Holdings Bhd (KL:HSPLANT) closed seven sen or 3.55% higher at RM2.04, translating into a market capitalisation of RM1.63 billion.

CIMB Securities head of research Ivy Ng attributed the bullish sentiment in plantation stocks to a reduction in Malaysia’s palm oil inventory, which fell below two million tonnes in October, according to the latest Malaysian Palm Oil Board (MPOB) report.

Concern about tight supplies and Indonesia's plan to adopt B40 biodiesel by January next year, which have kept CPO prices high, are the key reasons why plantation stocks emerged as top gainers on the local bourse on Monday, Ng told The Edge.

Given these, CPO price may stay above the RM5,000 level through the first half of next year before it subsides in the second.

Not impossible for CPO prices to breach RM6,000

Ng does not discount the possibility of CPO prices breaching the RM6,000 level in the near term due to tight supply and strong buying ahead of the upcoming festive seasons, but noted much also depends on weather conditions in key planting areas.

According to Bloomberg data, CPO futures surpassed RM5,000 last Friday — a level not seen since June 30, 2022. At the time of writing on Monday, CPO futures were trading RM92 higher at RM5,236 per tonne, from RM5,144 per tonne last Friday. Year-to-date, it was up 43% from RM3,662.

Malaysia’s palm oil stocks at the end of October this year fell 6.32% to 1.88 million tonnes from the previous month of 2.01 million tonnes, the first decline in inventory in three months, according to MPOB.

David Ng, a derivatives trader at Iceberg X Sdn Bhd, said plantation stocks are outperforming the overall market performance due to “the fundamental outlook for the palm oil market is very supportive at the moment”. “MPOB's official report indicated a decline in last month's inventory numbers, bringing it below two million tonnes. Thus, CPO prices have remained well-supported above RM5,000. With such high prices, plantation companies benefit from higher average selling prices."

He expects CPO prices to average RM4,800 per tonne for 2024, a notable increase from last year's RM3,800 per tonne, driven by a constrained stockpile and the anticipated biofuel mandate from Indonesia.

“Low stocks, seasonally weaker production, and Indonesia looking to higher biofuel blending mandate starting January next year will likely be key drivers that support a potential price rally in the palm oil market,” he added.

CGS Securities analyst Jacquelyn Yow also expects CPO price to remain elevated till the middle of next year. “At the recent Indonesian Palm Oil Conference, forecasters placed CPO prices in the range between RM4,500-5,000 per tonne. This aligns with our view that CPO prices will stay elevated in 1H2025, particularly driven by tight palm oil supply and strong seasonal demand from Chinese New Year and Ramadan,” Yow said in a research note.

Hence, Yow continues to favour upstream plantation players like Hap Seng Plantations, Ta Ann Holdings Bhd (KL:TAANN), and Sarawak Plantation Bhd (KL:SWKPLNT) due to their strong leverage to elevated CPO prices and solid production growth potential.

However, she remains “neutral” on the sector, given that downstream operations of integrated companies, such as KLK and IOI Corp Bhd (KL:IOICORP), still face challenges amid high feedstock prices. “For mid-sized upstream players, we would look out for potential positive earnings surprises and higher dividend payouts,” Yow added.