How are SGX-listed palm oil producers positioned for Q2 earnings amid elevated CPO prices?

Upstream Earnings Drive Stronger Q2 Expectations

Singapore-listed palm oil cultivators are projected to report improved financial performance for the second quarter, primarily due to elevated crude palm oil (CPO) prices enhancing plantation margins. Analysts anticipate that producers focused on upstream operations, such as First Resources and Bumitama Agri, will benefit most directly from the current CPO price environment.

Nirgunan Tiruchelvam, head of consumer and the Internet at Aletheia Capital, informed The Business Times that he expects SGX-listed planters to exceed Bloomberg’s second-quarter estimates for earnings before interest, taxes, depreciation, and amortisation (EBITDA) by approximately 10 per cent.

This positive outlook follows a period where palm oil futures advanced by around 17 per cent in the year to date. While CPO futures recorded a 14.8 per cent climb to RM4,749 a tonne between March 2 and April 3, prices subsequently adjusted, settling at RM4,640 a tonne on August 3, a 2.3 per cent decrease from their peak.

Policy and Geopolitics Underpin CPO Price Levels

The sustained strength in CPO prices reflects a combination of supply-side constraints and policy-driven demand. Expectations of reduced supply, partly from the El Nino weather phenomenon, contribute to market tightness.

Furthermore, Indonesia’s energy mandate, specifically its B50 policy implemented in July 2026, requires 18 million tonnes of CPO annually for blending with diesel. This volume represents over 35 per cent of Indonesia’s total palm oil production, effectively reducing global available supply.

Geopolitical developments also play a role; the ongoing Middle East conflict, including threats to Red Sea shipping lanes, contributes to higher crude oil prices.

Aletheia Capital's Tiruchelvam estimates that a US$10 per barrel increase in Brent crude prices could raise CPO prices by 3 to 6 per cent in the near term, as it enhances the economic viability of palm oil-based biodiesel blending.

The Malaysia Palm Oil Board (MPOB) forecasts CPO prices will remain above RM4,000 a tonne in the short term, averaging between RM4,300 and RM4,500 a tonne for 2026.

Integrated Players Navigate Rising Input Costs

While upstream operations gain from higher CPO prices, vertically integrated companies such as Wilmar and Golden Agri-Resources face a more complex margin dynamic. Analysts indicate that any gains from their plantation segments could be partially offset by increased raw material costs within their downstream processing businesses.

Supply chain disruptions, particularly those linked to the Gulf crisis, are elevating the cost of crucial plantation inputs, including fertiliser and diesel. Bumitama Agri noted during its first-quarter business update that it had secured nearly all its fertiliser requirements for the year, anticipating a cost increase of 5 to 10 per cent.

Similarly, Golden Agri-Resources projects higher fertiliser costs for fiscal year 2026, which will elevate its overall plantation expenses. However, OCBC analysts Ada Lim and Chu Peng observed that Golden Agri-Resources' reliance on locally sourced urea for a significant portion of its fertiliser mix might mitigate its exposure to global supply chain volatility.

Bloomberg Intelligence analyst Alvin Tai further noted that Wilmar’s second-quarter EBITDA, while potentially exceeding the previous year’s due to increased soybean crush volume and improved oil palm plantation earnings, could see some of these gains tempered by fertiliser costs, which may average about 13 per cent above December 2025 levels.

Sustained Momentum and Future Market Dynamics

Industry observers project that the positive earnings momentum for palm oil producers will extend into the second half of the year.

Nirgunan Tiruchelvam's forecast for FY26/27 places CPO prices at US$1,240 a tonne, which translates to an estimated gross margin of approximately US$840 a tonne and an operating margin of around 60 per cent after accounting for taxes and other expenses.

Despite the current tight supply conditions, the Malaysia Palm Oil Board suggests that the market has largely factored in the immediate effects of El Nino and the B50 policy for 2026. However, the board anticipates a potential CPO price surge in 2027 as the full impact of lower production filters through to the market.

Tiruchelvam maintains a favourable perspective on SGX-listed plantation firms, specifically highlighting Bumitama Agri and First Resources as well-positioned to benefit from CPO price increases due to their younger estates and high oil extraction rates. Indofood Agri Resources is also expected to gain from stronger downstream refining spreads.

The So-What for Decision-Makers

For decision-makers assessing the palm oil sector, the immediate focus should remain on the differential performance between upstream and integrated players. Upstream specialists like First Resources and Bumitama Agri are likely to demonstrate superior margin expansion in upcoming earnings reports, driven by CPO price strength.

Integrated groups such as Wilmar and Golden Agri-Resources require closer scrutiny of their input cost management strategies, particularly regarding fertiliser and diesel, as these will determine the extent to which downstream pressures erode upstream gains.

Investors should monitor CPO price movements relative to the MPOB's 2026 average forecast of RM4,300-RM4,500 a tonne and the anticipated supply impact of El Nino in Q4 2026, which could inform 2027 price trajectories.

The effectiveness of local sourcing for inputs, as demonstrated by Golden Agri-Resources' urea strategy, will be a critical factor in mitigating cost inflation for integrated operators.