‘Tactical positive’ on plantations as B50 biodiesel prospects emerge

KUCHING (March 10): Analysts from MBSB Investment Bank Bhd (MBSB Research) have upgraded their outlook on Malaysia’s plantation sector to a ‘tactical positive’, citing that rising geopolitical tensions could accelerate Indonesian policy momentum towards a B50 biodiesel mandate.

To recap, Indonesia announced back in January that they would not be implementing the B50 biodiesel mandate and instead keep the current B40 mandate as they cite technical readiness issues and funding constraints.

However, given that oil prices have surged beyond the US$100 per barrel (bbl) threshold due to geopolitical tensions, analysts from MBSB Research opines that Indonesia may reconsider accelerating the B50 again.

In a thematic sector report from March 10, MBSB Research said the ongoing conflict involving the US and Iran may indirectly strengthen crude palm oil (CPO) fundamentals by pushing crude oil prices higher and narrowing the Palm Oil-Gas Oil (POGO) spread.

“The key variable to monitor, is the POGO spread, where a potential narrowing spread would improve biodiesel blending funding in Indonesia and could accelerate policy momentum towards a B50 mandate, which, may tighten PO availability, hence providing upside support to CPO price,” the research arm explained.

MBSB Research further explained that their in-house analysis suggests that for every one per cent increase in GO prices, Indonesia biodiesel subsidy would be reduced by about US$8 per tonne or by 4.2 per cent.

And given that they are now forecasting GO prices to remain above US$95 per bbl in 2026, which is 7.3 per cent higher compared to 2025’s average of US$88.5 per bbl, the analysts estimates that Indonesia’s total subsidy requirement for a B50 mandate (based on an estimated biodiesel volume of 8.1 million tonnes) would be lowered to US$1.48 billion.

This would improve the financial viability of the B50 programme and potentially accelerate its rollout, although analysts said any move beyond the current B40 mandate is more likely in the second half of 2026 or later, subject to testing and industry readiness.

If implemented, the B50 mandate, which would increase biodiesel blending to 50 per cent, could tighten global palm oil supply by raising domestic consumption in Indonesia, the world’s largest producer.

Despite the more positive outlook for the plantation sector, analysts warned that cost pressures could emerge later in the year as urea fertiliser prices are currently trading at US$281 per tonne, a 20.6 per cent year-to-date (YTD) jump.

The cost pressure may not be as apparent in larger planters as they tend to typically lock in fertiliser procurement 6 to 12 months in advance, but smaller planters who tend to procure in smaller batches may begin to feel this pressure in 2H26.

At the same time, higher diesel prices, ocean freight rates and insurance premiums may lift overall logistic costs, potentially squeezing margins for both upstream producers and downstream exporters.

For now, MBSB Research maintains their 2026 CPO price estimates at RM4,200 per tonne as they note that spot prices have yet to break the upper resistance band of RM4,500 per tonne.

Among the plantation companies under its coverage, MBSB Research maintains ‘buy’ ratings on SD Guthrie Bhd, IOI Corporation Bhd, and TSH Resources Bhd. They also maintain ‘neutral’ calls on Genting Plantations Bhd Ta Ann Holdings Bhd, and Kuala Lumpur Kepong Bhd, and a ‘trading sell’ call on Sarawak Plantation Bhd.