The Bursa Malaysia Plantation Index outperformed the broader market in the last quarter of 2024, led by laggard plantation stocks that were trading at relatively cheap valuations. Indeed, even after the big gains, stocks like United Plantations remain modestly priced compared to their peers. The recent rally was driven by the surge in crude palm oil (CPO) prices in the last quarter, due to a combination of factors that included renewed strength in the US dollar, adverse weather conditions (heavy rainfall and flooding affecting production) as well as, we think, speculative interests ahead of Indonesia’s B40 biodiesel programme (slated to go into effect this month). Notably, prices of soybean oil — the main substitute for palm oil — did not rise in tandem, though prices for sunflower oil and rapeseed oil rose, also due to weather-related supply constraints.
CPO prices surged above RM5,200 per tonne in November 2024 but have since declined. Still, the prevailing prices of around RM4,400 per tonne are higher than they were at this time last year (about RM3,700 per tonne) (see Chart 1). In fact, the data shows a broad uptrend in CPO prices (in ringgit terms) over the past few decades, driven by rising global edible oil prices as well as the ringgit’s depreciation against the greenback. We think the current higher CPO prices are sustainable and we will explain why in the next few paragraphs, though we could see more volatile prices in the shorter term.
