Dry Spell May Result in Lower CPO Output

PETALING JAYA: The current El Nino dry spell, if prolonged until the middle of this year in major oil palm growing states in Malaysia, could result in lower-than-expected production for the year.

This could also cause crude palm oil (CPO) prices to stay firm at RM2,400 to RM2,800 per tonne for the rest of 2010, say industry players.

While January to March was traditionally a low peak production season for palm oil, planters expected the impact of El Nino on the growth of oil palm fresh fruit bunches (FFB) to be felt only within the next eight to 10 months, said Malaysian Estate Owners Association (MEOA) Boon Weng Siew.

He told StarBiz that during previous El Nino periods, FFB output was much smaller and had lower weightage with lesser oil extraction rate which could reduce local CPO production by 10% to 15%.

He did not expect Malaysia to achieve the targeted 18 million tonnes of CPO this year and predicted production to reach about 17.3 million tonnes instead.

Malaysia, the world’s second largest CPO producer, saw output decline to 17.56 million tonnes in 2009 compared with 17.73 million tonnes in 2008.

“Planted areas in Sabah, Johor and the northern part of the peninsula are now experiencing abnormally dry weather,” Boon said.

In contrast, Indonesia, the world’s largest CPO producer, may not be too affected by the El Nino phenomenon given the massive increase in its oil palm hectarage nationwide, he added.

Malaysia’s palm oil stock had also been on the decline over the past two months. Unlike the record stock in late 2009 at 2.24 million tonnes, CPO stock in January and February dropped to 2 million tonnes and 1.79 million tonnes respectively.

When contacted, analysts said El Nino was not the only factor pushing prices higher as continued demand from major importers like India and China, demand for biodiesel as well as the movement in the soyoil and crude oil prices would mirror the actual performance of the palm oil trade.

An analyst said: “It is still too early to predict. We need to study the El Nino impact during the local CPO peak production season from September to November versus the current low peak season.

“Only then can we gauge the damage on the entire CPO production for 2010.”

The Star yesterday reported that the Malaysian Meteorological Department expects the El Nino phenomenon to stay till May. No rainfall is expected in Perlis, Penang, Kelantan, Terengganu and Sabah over the next two weeks.

Areas like Kudat, Tawau and Sandakan in Sabah have been placed under drought alert with water rationing expected to start any time.

Of the total 1.28 million ha for oil palm in Sabah, about 1.15 million ha are mature plantations.

Despite the bullish expectations, CPO futures on Bursa Derivatives Exchange yesterday closed lower on speculation that buyers in India and China may be delaying purchases after building their stockpiles.

A Bloomberg report quoted the Solvent Extractors’ Association of India as saying that purchases by India, which surpassed China as the biggest palm oil buyer last year, reached 2.39 million tonnes in the four months ended February from 2.33 million tonnes a year earlier

The benchmark CPO contract for June yesterday closed RM60 lower at RM2,535 per tonne, the lowest since Feb 8.

Source : The Star by Hanim Adnan

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