Thursday September 23, 2004 - WEATHER will again be the key factor thatcould drive crude palm oil (CPO) prices higher going forward.

With recent reports confirming the return of a mild El Nino, many analystsare revising upwards their CPO price forecasts to about RM1,600 per tonnenext year and RM1,500 per tonne in 2006. By comparison, last year'saverage price was RM1,544 per tonne.

On the spot market yesterday, CPO was traded unchanged at RM1,530 pertonne while October futures were lower by RM5 at RM1,491per tonne.

The average CPO price last month was RM1,475 per tonne, unchanged fromJuly. In the first half this year, CPO prices had performed even better,averaging between RM1,770 and RM1,800 a tonne.

Many analysts agree that CPO prices are still holding up well due to theEl Nino phenomenon and bad weather in India, which has affected theproduction of the country's vegetable oils.

Both the Climate Prediction Centre in Washington and the Bureau ofMeteorology in Australia have reported growing indications that a mild ElNino is developing in the Pacific region which could last for four toeight months.

The last time the El Nino phenomenon surfaced was from May 2002 to March2003, during which the average monthly CPO price rose by 36%.

AmResearch said in its recent notes: Even if the coming El Nino may bemild, it should nonetheless benefit CPO prices. CPO prices are likely toremain firm until at least the middle of next year.

One plantation analyst pointed out that India's recent move to reducetariffs on all vegetable oils due to high inflation also meant good newsfor CPO.

On the demand side, China's imports of palm oil are expected to remainrobust, especially in view of the possibility that the country wouldswitch to the commodity from soybean owing to Beijing Government's strictcontrol on the use of fungicides in soybean production.

In India, the supply shortage in vegetable oils for 2004/2005 due todrought would also push up demand for palm oil.

On the domestic front, CPO output could possibly fall short of theMalaysian Palm Oil Board's forecast of 13.7 million tonnes this year dueto lower yields and oil extraction rates in Sarawak and some other statesin Peninsular Malaysia in the first half this year.

In the near term, however, the plantation analyst said CPO prices wouldlikely hover at current levels following the US Department ofAgriculture's forecast of a 17% increase in soybean production to 77.18million tonnes in 2004/2005 from an estimated 65.8 million the yearbefore.