JAKARTA – Weather challenges in Malaysia and Indonesia within the past month have induced concerns amid the market regarding the production of crude palm oil (CPO). CPO-producing regions in Malaysia reported drought, whereas Indonesia’s rainfall seemed more intense than normal.

This is projected to maintain CPO price at a high level, according to PT Ina Sekuritas Indonesia.

Malaysia’s CPO production is, indeed, still growing yearly, but weather challenges might potentially put pressure on harvests this year.

In the meantime, Indonesia’s production recovery is at its peak. However, Indonesia’s CPO production is said to be quite limited due to low sunlight intensity and high fertiliser price.

The pressure on Indonesia’s CPO market have been demonstrated through the number of fresh fruit bunches production, which declined 40-60% as of last December.

“As a result, CPO’s price projection for FY25/26F is raised by over 20% and 30% to MYR 4,700 and MYR 4,800 per ton,” explained Ina Sekuritas Indonesia in the report.

The Indonesian government is also considering to cut off CPO export duties in order to boost competitiveness in the global market.

With several issues on hand, Ina Sekuritas Indonesia grants the initial overweight recommendation for the plantation sector. This recommendation is based on declining harvest of CPO, as well as historical effect from La Nina.

Thus, plantation shares such as PT Perusahaan Perkebunan London Sumatra Indonesia Tbk (LSIP) and PT Astra Agro Lestari Tbk (AALI) are given “buy” recommendation.

“We launched overweight recommendation for plantation sector due to potential harvest decline and historical effect of La Nina,” added Ina Sekuritas Indonesia. (KR/ZH)

Check full report here.