MARKET DEVELOPMENT
El Nino May Spur Palm Oil Rally as UBS Highlights Impact
El Nino May Spur Palm Oil Rally as UBS Highlights Impact
14/05/2015 (Bloomberg) - Palm oil may rally should an El Nino weather pattern spur dry conditions across Southeast Asia, hurting output, while key buyers such as China bring forward purchases to guarantee supplies.
Prices may advance to 2,500 ringgit ($694) a metric ton over the next three months, Maybank Investment Bank Bhd. analyst Ong Chee Ting said in a report on Wednesday. That’s 14 percent higher than Wednesday’s close on Bursa Malaysia Derivatives.
The return of an El Nino for the first time since 2010 was declared on Tuesday by Australia’s Bureau of Meteorology, which said that the event could be substantial. El Ninos influence conditions across the globe and in Asia they can bake Indonesia and Malaysia, the two largest palm oil producers. Planters’ stocks including IOI Corp. Bhd. in Malaysia rose on Wednesday.
“In the coming months, we expect palm oil export figures to pick up as end-buyers like China, with its low inventory level, may take a defensive strategy to stock up ahead, on fear of a possible supply crunch,” Ong said. While this will boost the palm oil price, the extent of any advance will depend largely on the El Nino’s intensity, Ong said.
Palm oil climbed to a five-week high in Kuala Lumpur on Tuesday after the El Nino announcement by the Australian forecasters. Futures ended 1.2 percent lower at 2,198 ringgit a ton on Wednesday. They last traded above 2,500 ringgit a ton in June.
Shares Advance
IOI climbed 3.4 percent to 4.30 ringgit, while Felda Global Ventures Holdings Bhd. retreated 0.5 percent. Both were raised to hold from sell at Maybank. PT Astra Agro Lestari shares surged 7.7 percent in Jakarta, while Bumitama Agri Ltd. advanced 1 percent in Singapore.
Palm oil production in Indonesia and Malaysia declined at the time of the last strong El Nino in 1997-1998. The two countries account for 86 percent of world supplies, according to the U.S. Department of Agriculture. Oil palms need about 150 millimeters to 200 millimeters of precipitation a month, according to the Malaysian Meteorological Department.
Lower rainfall and soil-moisture levels can hurt yields after a lag, with the effects of dry weather typically felt 10 to 12 months or 22 to 24 months later, Ivy Ng, an analyst at CIMB Investment Bank, said in a report.
A moderate El Nino, combined with a strong execution of a biodiesel mandate in Indonesia, could benefit prices in late 2015, Ng said in the report on Tuesday. Gains may be limited near term on seasonally high supply and reserves, she said.
“We have to remember that the impacts of El Nino tend to, perhaps particularly in palm oil, not be shown up immediately,” Wayne Gordon, an analyst at UBS Group AG in Singapore, said in a Bloomberg TV interview. “ We’ve put it on the radar, we’ll take a bit of time, and then we’ll look at it on a more serious note as we get into the third quarter.”
Prices may advance to 2,500 ringgit ($694) a metric ton over the next three months, Maybank Investment Bank Bhd. analyst Ong Chee Ting said in a report on Wednesday. That’s 14 percent higher than Wednesday’s close on Bursa Malaysia Derivatives.
The return of an El Nino for the first time since 2010 was declared on Tuesday by Australia’s Bureau of Meteorology, which said that the event could be substantial. El Ninos influence conditions across the globe and in Asia they can bake Indonesia and Malaysia, the two largest palm oil producers. Planters’ stocks including IOI Corp. Bhd. in Malaysia rose on Wednesday.
“In the coming months, we expect palm oil export figures to pick up as end-buyers like China, with its low inventory level, may take a defensive strategy to stock up ahead, on fear of a possible supply crunch,” Ong said. While this will boost the palm oil price, the extent of any advance will depend largely on the El Nino’s intensity, Ong said.
Palm oil climbed to a five-week high in Kuala Lumpur on Tuesday after the El Nino announcement by the Australian forecasters. Futures ended 1.2 percent lower at 2,198 ringgit a ton on Wednesday. They last traded above 2,500 ringgit a ton in June.
Shares Advance
IOI climbed 3.4 percent to 4.30 ringgit, while Felda Global Ventures Holdings Bhd. retreated 0.5 percent. Both were raised to hold from sell at Maybank. PT Astra Agro Lestari shares surged 7.7 percent in Jakarta, while Bumitama Agri Ltd. advanced 1 percent in Singapore.
Palm oil production in Indonesia and Malaysia declined at the time of the last strong El Nino in 1997-1998. The two countries account for 86 percent of world supplies, according to the U.S. Department of Agriculture. Oil palms need about 150 millimeters to 200 millimeters of precipitation a month, according to the Malaysian Meteorological Department.
Lower rainfall and soil-moisture levels can hurt yields after a lag, with the effects of dry weather typically felt 10 to 12 months or 22 to 24 months later, Ivy Ng, an analyst at CIMB Investment Bank, said in a report.
A moderate El Nino, combined with a strong execution of a biodiesel mandate in Indonesia, could benefit prices in late 2015, Ng said in the report on Tuesday. Gains may be limited near term on seasonally high supply and reserves, she said.
“We have to remember that the impacts of El Nino tend to, perhaps particularly in palm oil, not be shown up immediately,” Wayne Gordon, an analyst at UBS Group AG in Singapore, said in a Bloomberg TV interview. “ We’ve put it on the radar, we’ll take a bit of time, and then we’ll look at it on a more serious note as we get into the third quarter.”