By BLOOMBERG
Palm oil output in Malaysia will decline this month and next as severe flooding disrupts harvesting in the largest exporter after Indonesia, exacerbating a seasonal drop in production, according to RHB Investment Bank Bhd.
Output may contract by as much as 20% in December from 1.75 million metric tonnes in November, according to Alvin Tai, an analyst at the bank who has covered the plantation industry for 11 years.
There’ll be significant reduction in harvesting, he said by phone in Kuala Lumpur.
The commodity that’s used in foods and biofuels is headed for the first quarterly increase this year as Malaysia suffers from its country’s worst flooding in decades caused by heavy monsoon rains.
Commodity Weather Group LLC predicts that the wet weather pattern may threaten damage to the tropical crop next week.
The price rally pared an annual loss spurred by the collapse in global energy prices, which hurt biofuel demand.
“At this point in time, definitely there will be crop loss,” Tai said yesterday. Flooding “aggravates the downcycle. If crude oil price didn’t drop like it did in the past one, two months, the rally would probably have been a lot stronger.”
Palm oil for March delivery ended little changed at RM2,284 ringgit a tonne on Bursa Malaysia Derivatives yesterday after an eight-day rally.
The price — which climbed to RM2,308 on Dec 29, the highest since Nov 4 — is 3% higher this quarter. For the year, it’s lost 14% after dropping in September to the lowest since 2009.
Price outlook
Palm oil will probably be capped at about RM2,400 a tonne as crude oil prices continued to decline, Tai said.
Palm last traded above that price in July. West Texas Intermediate crude oil lost 45% this year as the highest US output in more than three decades contributed to a surplus.
While the Malaysian peninsula and southern Thailand will be a little drier than normal for the rest of this week, a tropical storm may push into the area around Sunday, setting off another week of wet weather, David Streit, senior lead forecaster at Commodity Weather Group, in Bethesda, Maryland, said by email.
If the floods subside fast enough, fresh fruit bunches that couldn’t be picked this month and that can be salvaged, may be harvested in January, said Tai.
The decline in output next month may not be as steep as usual on this spillover effect, he said.
Palm oil output in Malaysia typically drops after October, usually bottoming in January or February.
Production in the first 20 days of December fell 21%, with supply from Peninsula Malaysia declining 27%, according to Tai, who cited estimates from the Malaysian Palm Oil Association.
A total of 21 people were dead and a further 10 were missing from the floods, the New Straits Times reported yesterday, citing Malaysia police chief Khalid Abu Bakar. About 10,000 police officers have been deployed to assist in flood-hit states, Khalid said.
— By Ranjeetha Pakiam
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