We raise our CPO price assumptions – If our base case scenario of the Middle East ceasefire remaining in effect beyond two weeks (with no further escalation) is realised, CPO prices should stabilise at MYR4,200-4,500/tonne. This implies higher biodiesel mandates should still be in place, which will mean tighter overall supplies of vegetable oils globally – with 2026F stock/usage ratios at below historical averages.
Palm oil-gas oil (POGO) spread is positive again.
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At the current POGO spread, there should still be enough money in the Indonesia biodiesel fund to subsidise B50 at current export tax and levy rates. Discretionary biodiesel demand of 3m tonnes pa may also return if the POGO spread turns negative.
Three geopolitical scenarios.
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CPO prices could settle at ~MYR4,300-4,500/tonne, assuming a similar price correlation. At these levels, the POGO spread would likely still be relatively thin, meaning increased biodiesel mandates should still be feasible.
Stock/usage ratios may drop to below historical averages with B50.
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Above is an excerpt from a report by RHB Securities Research. Clients of RHB may be the first to access the full PDF report @ https://www.rhbtradesmart.com/.
