Dry Weather Spells Trouble

SINGAPORE: A severe dry spell across a wide swathe of Southeast Asia threatens to curb output of palm oil and rubber, while the weakest rainfall in more than a decade may cripple rice planting in top exporters Thailand and Vietnam.

The resurgence of an El Nino weather pattern in a region that is the world’s biggest producer of palm oil, rice and rubber and a key supplier of coffee and cocoa has brought hotter weather to farms and plantations, drying out trees and sapping yields.

Taking the brunt of the harsh weather are Thailand and Vietnam, which together furnish half of world rice exports of about 30 million tonnes a year; some stretches of the island of Borneo and pockets of Indonesia, the world’s largest palm oil producer; and even Australia is being affected slightly.

Falling palm oil supplies from Malaysia and Indonesia, responsible for 85 per cent of global production, could stiffen Malaysian benchmark futures, now up 45 per cent from January 2009 lows.

The Tokyo rubber market should climb in March, bolstered by strong demand and a sharp decline in supply, which have pushed physical prices to 58-year highs.

“It looks quite severe as of now, and of course, everyone is hopeful this won’t last, and the weather will be back to normal, but so far we haven’t seen that,” said analyst Ivy Ng of investment bank CIMB in Kuala Lumpur, who tracks palm oil firms.

“If there are no rains until June, the trees will be stressed and it could have impact on production in the second half of the year or even in the first half.”

Poor rains in Indonesia, the world’s largest palm oil producer, mean this year’s output will miss the industry target of 21.5 million tonnes by about 5 per cent. Neighbouring Malaysia is also likely to see production drop, just as the trade geared up for a seasonal output rebound.

Planters in Sabah say continuing hot weather could chip 10 per cent off production this month after February’s monthly slide of 15 per cent.

The situation is no better in Peninsular Malaysia.

The dry weather could stretch far into 2011, analysts warned, shrinking output and supplies.

Source : Business Times

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