MARKET DEVELOPMENT
Haze, El Nino Crimp Palm Fruit Yield, Help Perk Up Price
Haze, El Nino Crimp Palm Fruit Yield, Help Perk Up Price
30/10/2015 (Nikkei Asian Review) - IOI Corp, a plantation major, has warned its oil palm output will decline 10% this year as a lingering haze that has shrouded vast swathes of palm plantations in Malaysia and Indonesia and pronounced effects of El Nino weather conditions are expected to squeeze fresh fruit harvest.
Lower production could help prop up price of the commodity that recently hit multi-year lows amid supply glut, ballooning inventories, and feeble demand growth from India, the world's largest importer of palm oil that is widely used for cooking to cosmetics.
Raging forest fires in parts of Indonesia create thick smog that drifts over the Malacca Strait to shroud extensive parts of Malaysia and Singapore, raising air pollution to unhealthy levels at many places and forcing authorities to shut schools. The haze, usually an annual phenomenon arising from illegal burning of old oil palm trees in plantations spread across the tropical rainforests, amounts to some economic losses for the affected countries by disrupting flights, magnifying navigation risks in one of the world's busiest shipping routes while raising health hazards.
"We foresee the current haze conditions, which reduce sunlight hours for plantations, to affect our fresh fruit bunches production by about 10%," said IOI chief executive Lee Yeow Chor. Haze envelops oil palm leaves, cutting out sunlight needed for photosynthesis.
IOI, which owns 177,680 hectares of oil palm plantation in Malaysia and Indonesia, expects production growth to decelerate between 3.0% and 5.0% next year. Prices are likely to stabilize at current levels until year-end and start edging higher in the first quarter next year, Lee added.
Palm oil prices have rebounded from a six-year low in August as smog began to envelop Malaysia and Indonesia, which account for a combined 85% of global palm oil production.
The benchmark Crude Palm Oil Futures Contract on Bursa Malaysia Derivatives in Kuala Lumpur for January delivery rose 0.5% to 2,353 ringgit a ton on Thursday. Palm oil prices have bounced back 26% from this year's low of 1,867 ringgit a ton as on Aug. 26.
In a recent note to investors after meeting the management of conglomerate Sime Darby, the largest palm planter by acreage, Public Invest Research estimated fresh fruit bunch production growth to be in a range of zero to 5% depending on the impact of El Nino on the company's plantations in Kalimantan and Sumatra, which collectively make up 27% of its total oil palm acreage. While Sime Darby shares are trading 0.4% higher at 8.57 ringgit, IOI shares are 0.2% lower at 4.32 ringgit when the benchmark KLCI index is down 0.7%.
Weather monitoring agencies have warned that this year's El Nino could produce one of the hottest weathers since records began in 1950. El Nino is the unusual warming of the Pacific Ocean that causes a shift of moist winds away from their more typical patterns and results in less rain. The unusually dry weather shrivels oil palm trees, hurting yields.
The impact from El Nino could be felt in six to nine months, and crude palm oil production could decline between 5% and 10% year depending on location of the plantations, said MIDF Amanah Investment Bank analyst Alan Lim.
"We believe CPO price may exceed 2,500 ringgit per ton by March 2016," as excess supply eases, he added.
Palm oil consultancy Ganling predicts global palm oil's annual incremental supply will be 1.4 million tons lower in 2015 and fall by 1.1 million tons in 2016 following a strong El Nino, lagging an estimated rise of 3 million tons in annual demand. That will be a major catalyst for palm oil prices, Ganling predicts.
Excess supplies have swelled inventory levels - palm oil inventory in Malaysia rose to new lifetime-high in September - despite government's recent efforts to cut output and perk up prices.
Palm oil inventories rose 5% month-on-month and 26% year-on-year to rise to 2.63 million tons in September, and could swell to 3 million tons by November if nothing was done, Commodities Minister Douglas Uggah Embas had said.
Malaysia has unveiled a slew of measures, including partnering larger neighbour Indonesia to form an OPEC style body, to prop up prices of the commodity.
The government also plans to raise palm oil's mix in bio-diesel and to cut imports of the commodity from Indonesia to manage inventory. Earlier, it launched a $23 million incentive scheme to replant 83,000 hectares of unproductive and replace ageing palm trees in the country.
Lower production could help prop up price of the commodity that recently hit multi-year lows amid supply glut, ballooning inventories, and feeble demand growth from India, the world's largest importer of palm oil that is widely used for cooking to cosmetics.
Raging forest fires in parts of Indonesia create thick smog that drifts over the Malacca Strait to shroud extensive parts of Malaysia and Singapore, raising air pollution to unhealthy levels at many places and forcing authorities to shut schools. The haze, usually an annual phenomenon arising from illegal burning of old oil palm trees in plantations spread across the tropical rainforests, amounts to some economic losses for the affected countries by disrupting flights, magnifying navigation risks in one of the world's busiest shipping routes while raising health hazards.
"We foresee the current haze conditions, which reduce sunlight hours for plantations, to affect our fresh fruit bunches production by about 10%," said IOI chief executive Lee Yeow Chor. Haze envelops oil palm leaves, cutting out sunlight needed for photosynthesis.
IOI, which owns 177,680 hectares of oil palm plantation in Malaysia and Indonesia, expects production growth to decelerate between 3.0% and 5.0% next year. Prices are likely to stabilize at current levels until year-end and start edging higher in the first quarter next year, Lee added.
Palm oil prices have rebounded from a six-year low in August as smog began to envelop Malaysia and Indonesia, which account for a combined 85% of global palm oil production.
The benchmark Crude Palm Oil Futures Contract on Bursa Malaysia Derivatives in Kuala Lumpur for January delivery rose 0.5% to 2,353 ringgit a ton on Thursday. Palm oil prices have bounced back 26% from this year's low of 1,867 ringgit a ton as on Aug. 26.
In a recent note to investors after meeting the management of conglomerate Sime Darby, the largest palm planter by acreage, Public Invest Research estimated fresh fruit bunch production growth to be in a range of zero to 5% depending on the impact of El Nino on the company's plantations in Kalimantan and Sumatra, which collectively make up 27% of its total oil palm acreage. While Sime Darby shares are trading 0.4% higher at 8.57 ringgit, IOI shares are 0.2% lower at 4.32 ringgit when the benchmark KLCI index is down 0.7%.
Weather monitoring agencies have warned that this year's El Nino could produce one of the hottest weathers since records began in 1950. El Nino is the unusual warming of the Pacific Ocean that causes a shift of moist winds away from their more typical patterns and results in less rain. The unusually dry weather shrivels oil palm trees, hurting yields.
The impact from El Nino could be felt in six to nine months, and crude palm oil production could decline between 5% and 10% year depending on location of the plantations, said MIDF Amanah Investment Bank analyst Alan Lim.
"We believe CPO price may exceed 2,500 ringgit per ton by March 2016," as excess supply eases, he added.
Palm oil consultancy Ganling predicts global palm oil's annual incremental supply will be 1.4 million tons lower in 2015 and fall by 1.1 million tons in 2016 following a strong El Nino, lagging an estimated rise of 3 million tons in annual demand. That will be a major catalyst for palm oil prices, Ganling predicts.
Excess supplies have swelled inventory levels - palm oil inventory in Malaysia rose to new lifetime-high in September - despite government's recent efforts to cut output and perk up prices.
Palm oil inventories rose 5% month-on-month and 26% year-on-year to rise to 2.63 million tons in September, and could swell to 3 million tons by November if nothing was done, Commodities Minister Douglas Uggah Embas had said.
Malaysia has unveiled a slew of measures, including partnering larger neighbour Indonesia to form an OPEC style body, to prop up prices of the commodity.
The government also plans to raise palm oil's mix in bio-diesel and to cut imports of the commodity from Indonesia to manage inventory. Earlier, it launched a $23 million incentive scheme to replant 83,000 hectares of unproductive and replace ageing palm trees in the country.