Malaysia faces a heightened risk of recurring transboundary haze as forest and land fire hotspots surge across Indonesia, with a potentially very strong El Niño threatening to disrupt palm oil production and support crude palm oil (CPO) prices into 2027, according to MBSB Research.
In its latest plantation sector report, the research house said data from the ASEAN Specialised Meteorological Centre (ASMC) showed Indonesia recorded 15,186 hotspots in August, compared with 1,651 in the corresponding month last year.
Kalimantan accounted for 13,260 hotspots, representing 87.3% of Indonesia’s total, while Sumatra recorded 1,926.
Malaysia registered 265 hotspots during the month, compared with 61 a year earlier, with Sabah and Sarawak accounting for 220 of the latest total.
Haze Could Return Despite Rainfall In Malaysia
MBSB Research said prolonged dryness in Indonesia, particularly Kalimantan, raises the risk of further fires and transboundary haze affecting Malaysia.
Smoke from Sumatra could affect Peninsular Malaysia, while fires in Kalimantan could expose Sabah and Sarawak to deteriorating air quality when prevailing winds carry smoke across borders.
The research house noted that 12 areas in Malaysia recorded unhealthy Air Pollutant Index readings on Sept 22, despite recent rainfall providing some relief.
It cautioned that showers may temporarily improve air quality, but continued fire activity in Indonesia could result in recurring haze as wind conditions change.
For plantation operators, haze could disrupt harvesting, fertiliser application and estate maintenance even where rainfall remains adequate.
Palm Oil Production Could Weaken In 2027
MBSB Research said the anticipated El Niño cycle is expected to strengthen during the final quarter of 2026, with its most probable peak occurring between November 2026 and January 2027.
Prolonged dry conditions could affect oil palm fresh fruit bunch (FFB) yields after a time lag, potentially tightening palm oil supply next year.
However, the research house noted that Malaysian estates have generally experienced more favourable rainfall conditions than their Indonesian counterparts.
Malaysia’s average FFB yield stood at 10.83 tonnes per hectare during the first eight months of 2026, down 1.5% year-on-year.
Peninsular Malaysia recorded a 7.8% decline to 11.29 tonnes per hectare, while combined yields in Sabah and Sarawak improved 5.8% to 10.48 tonnes per hectare.
MBSB said current production figures do not yet indicate a nationwide weather-driven contraction, although sustained moisture stress could weigh on subsequent harvests and tighten CPO availability in 2027.
CPO Price Forecast Maintained At RM4,400 Per Tonne
MBSB Research maintained its tactical positive outlook on the plantation sector and its average CPO price forecast of RM4,400 per tonne for 2026.
The research house expects potential supply constraints from prolonged dry weather to provide support for palm oil prices.
Its preferred plantation stocks remain Ta Ann Holdings, with a BUY recommendation and target price of RM6.72, and Sarawak Plantation Bhd, with a target price of RM5.36.
Among larger plantation companies, it favours SD Guthrie, maintaining a BUY recommendation and RM7.65 target price.
MBSB said plantation companies with substantial Malaysian upstream operations could benefit from firmer CPO prices while remaining relatively better positioned against severe weather-related disruptions.
Nevertheless, the research house stressed that rainfall patterns, hotspot activity and subsequent FFB yields would remain critical indicators for assessing the impact of El Niño on palm oil supply over the coming months.
