PETALING JAYA: The prolonged dry weather in the country may result in crude palm oil (CPO) prices spiking by 30% from current levels of above RM2,600 per tonne.
Public Invest Research analyst Chong Hoe Leong said that the price spike was a possibility as “any El Nino event usually would take four to five months to confirm.”
The dry weather pattern still has not been reflected in the price of CPO, which is seen struggling at current levels.
“I believe there will be a further upside to CPO prices should this El Nino-like condition prolong,” Chong told StarBiz in a telephone interview yesterday.
“I think the Australian Bureau of Meteorology (ABM) will need more time to confirm if this is the case (the El Nino weather phenomenon),” added Chong, who has an “overweight” call on the plantation sector.
ABM said in a recent report that it believed there was more than 70% chance that the El Nino weather pattern would develop during the June to August period.
The Oscillation Index has shown a minus 13.3 value for March, which indicates warmer temperature. Sustained negative values of minus 8 for at least four to five months will indicate an El Nino event.
“Should El Nino develop, we expect the production of local fresh fruit bunches will decline significantly over the next two years,” Chong said in his latest sector report.
Chong pointed out that the last El Nino weather phenomenon occurred in the 2009-2010 period. It lasted for nearly 10 months and caused CPO prices to jump more than 30% after the initial weak signs from May to September 2009.
CIMB‘s plantation analysts Ivy Ng Lee Fang and Saw Xiao Jun, who recently visited several plantation estates in Sarawak, noted that there was some reduced rainfall from February to March in the state but the deficit was “not as severe” compared with the situation in Peninsular Malaysia.
Meanwhile, wire reports quoted cargo surveyor Intertek Testing Services as saying that exports of Malaysia’s palm oil products for the first half of April rose 8.6% to 521,847 tonnes from 480,730 tonnes for March 1–15.
As at 5pm, the three-month benchmark CPO futures contract for June was traded at RM2,661 per tonne, up RM26.
Source : The Star