Palm oil output in Malaysia, the world's second-largest producer, is estimated to fall by 2 million tonnes from a year earlier in the oil year ending September 2016 due to the effects of El Nino, leading industry analyst Dorab Mistry said.
The decline in production, its sharpest in at least seven years, could bring stronger rallies to benchmark palm oil prices , which have risen 5 per cent in the last two weeks to a two-year high of 2,726 ringgit (S$927) a tonne on Friday.
For the first half of calendar year 2016, Malaysian output is expected to decline by a million tonnes, Mistry added at the Thirteenth International Oils & Oilseeds Conference in Beijing.
Production for the first two months of the year is running more than 100,000 tonnes less than the corresponding period a year ago, Mistry said, and the deficit is expected to expand to at least 350,000 tonnes by the end of March. "I shall not be surprised if the deficit for first half 2016, as compared with first half 2015, will be in excess of 1 million tonnes," he said. "From July we can expect some recovery in Malaysia. However, we have had severe dry weather in Sabah since the second half of January and that is likely to continue until the first half of April. Sabah palm oil production will suffer an extended impact around September 2016." Mistry, a Singapore-based director with Indian consumer goods company Godrej International, last forecast Malaysian output to drop 1.5 million tonnes to 18.4 million tonnes due to the El Nino.
An El Nino weather event brings scorching heat across Southeast Asia, affecting the oil palm's fresh fruit yields and lowering output in Malaysia and Indonesia, which produce about 90 per cent of global palm oil.
Mistry maintained his estimate for Indonesian palm production to fall by 1.2 million tonnes and that palm prices will reach 3,000 ringgit this year. "Palm oil futures on Bursa Malaysia have already risen to 2,700 (ringgit). I believe we shall touch 3,000 ringgit before long." Indonesian output is forecast to fall in February to 2.3 million tonnes from 2.44 million tonnes a month earlier due to drought and forest fires, its lowest levels in a year. Its annual palm oil output is expected to fall to 32.1 million tonnes this year, the first decline since 1998, said the Indonesian Palm Oil Association (GAPKI).