KUALA LUMPUR: The ongoing conflict in the Middle East is casting a shadow over Malaysia's plantation sector, with analysts warning of rising costs and potential demand disruptions despite a temporary boost in crude palm oil (CPO) prices.
RHB Research analyst Hoe Lee Leng said the geopolitical tensions have created a "multi-faceted impact" on the industry.
While higher crude oil prices have pushed CPO prices up 11.6 per cent since the conflict began, narrowing the palm oil-gasoil (POGO) spread and potentially supporting Indonesia's B50 biodiesel mandate, the negative ramifications are more concerning.
Hoe said shipping route closures near the conflict zone threaten demand from countries such as Pakistan, Egypt, Saudi Arabia, Turkey, the United Arab Emirates and Iran, potentially affecting up to 15 per cent of global palm oil consumption.
She added that the war is disrupting supply chains, with fertiliser and logistics costs expected to rise sharply.
The Strait of Hormuz, a critical chokepoint for roughly one-third of the world's fertiliser trade, is at risk, potentially impacting global edible oil production.
"As for logistics costs, we understand global freight costs have risen to all-time highs, while insurance companies are preparing for the possible activation of 'notice of cancellation' provisions in war-risk policies and for sharp spikes in war-risk premiums.
"All this could add to higher overall costs for palm oil – fertiliser costs currently comprise about 20-30 per cent of total palm oil production costs, while transport and logistic costs comprise around 5-10 per cent," Hoe said.
RHB Research maintained a "Neutral" stance on the plantation sector, noting that if the conflict stabilises or ends, CPO prices could fall rapidly, similar to the 2022 pattern following the Russia-Ukraine war, when prices initially spiked before dropping 59 per cent from their peak.
CIMB Securities also maintained a "Neutral" sector rating, citing IOI Corp Bhd as a preferred pick with a target price of RM4.51 for its low gearing and potential exposure to mergers and acquisitions activity.
The firm's analyst Ivy Ng Lee Fang said that while CPO prices have risen 9.5 per cent since the onset of the conflict to RM4,428 per tonne, the benefit to planters could be offset by surging fertiliser costs and a potential slowdown in global demand if energy prices remain elevated.
Malaysian palm oil stocks are projected to fall eight per cent month-on-month to 2.48 million tonnes in March 2026, while production is expected to increase 12 per cent to 1.44 million tonnes.
"As the current CPO price is above our 2026 forecast of RM4,000 a tonne, we see upside risk to our projection should the conflict and the closure of the Strait of Hormuz persist.
"However, while higher CPO prices are positive for planters, the benefit may be partly offset by rising fertiliser costs linked to higher energy prices.
"Prolonged elevated energy prices could also weaken global economic growth, potentially dampening palm oil demand," she added.
