Thursday August 12, 2004 - Crude palm oil (CPO) prices, which haveaveraged between RM1,400 and RM1,600 per tonne this year, could receive a10% to 15% boost should the El Nino weather phenomenon return later thisyear.

In 1997-98, the price of CPO had rocketed to as high as RM2,300 to RM2,500per tonne due to the low production of world oilseeds caused by a severeEl Nino.

Market players contacted by StarBiz concurred that El Nino could create abullish price environment for palm oil and even reduce the risk toearnings among plantation companies.

Several international meteorologists in the US and Australia have of latespeculated that the El Nino weather phenomenon could return within thenext two to three months.

This has surprised many as the phenomenon had occurred just 2½ years ago.

Typically, El Nino occurs every four to seven years although consecutiveevents have happened before in 1993-1995.

Even if it's still early days, it is still worth watching as El Nino is akey indicator for the plantation sector's growth, said one plantationanalyst.

Malaysian Palm Oil Association (MPOA) chief executive M.R. Chandran saidshould El Nino conditions occur late this year, major palm oil producerslike Malaysia and Indonesia would experience less rainfall anddrought-like conditions that would result in a reduction in global palmoil supplies next year.

Whenever oil palm trees get consistently lower than average rainfall, theygo into hibernation, effectively conserving water and aborting newlyformed fresh fruit bunches (FFBs), thus leading to lower production ofFFBs, with a lag of between nine and 12 months.

Chandran said MPOA maintained its forecast of palm oil production thisyear to be flat at 13.3 million tonnes compared with the Malaysian PalmOil Board's forecast of 13.6 million tonnes.

We believe that even without El Nino, palm oil production cannot achievethe MPOB forecast this year due as the trees would be going through thestress phase of their biological cycle due to the high yields experiencedlast year,” he added.

I believe this will have an impact on Malaysia's palm oil crop productionnext year. Any rainfall deficit of 100mm per year can translate into areduction of between 10% and 20% in FFBs.

In Malaysia, the average rainfall varies between 1,600 mm and 2,400 mm peryear.

We will closely monitor the months of August, September and October to seewhether the palm oil production will hit an all-time high of 1.3 milliontonnes per month, Chandran said.

He said, however, that in view of the poor CPO production during the firsthalf of this year, MPOA was sceptical whether the target was achievable.

MPOA has conservatively put Malaysia's CPO production at 13.6 milliontonnes next year against MPOB's 13.8 million tonnes.

When contacted, United Plantations Bhd vice-chairman and executivedirector (corporate affairs), Carl Bek-Nielsen said it was a littlepremature'' to predict the occurrence of an early El Nino.

He said, however, that it had been proven that the El Nino impact hadalways sent world vegetable oils prices flying.

If a pronounced El Nino were to occur, CPO production would likely beaffected next year, he added.