30/12/2014 (The Star) - The floods that have ravaged the East Coast in the recent weeks are expected to reduce palm oil output from several Malaysian states.

CIMB Research said in a report yesterday that the four worst-hit flooded states of Terengganu, Pahang, Kelantan and Perak accounted for 30% of Malaysia’s palm oil supply in 2013.

Its analyst Ivy Ng noted that harvesting, milling and transportation activities as well as operations of related processing facilities in affected estates would be disrupted.

She said in her report that crude palm oil output for Dec 2014 could post a larger decline from the previous month but noted that it was too early to assess the impact now.

“This will be dependent on the severity and length of the on-going monsoon. However, we expect this event to lift crude palm oil (CPO) prices in the near term,” Ng said.

Maintaining her “neutral” rating on the sector, she noted that among companies on CIMB Research’s radar, Felda Global Ventures Holdings Bhd (FGV) had the highest exposure to the flood-affected states.

“Planters with the highest estates exposure to the states impacted by the floods are FGV, followed by Sime Darby Bhd, IOI Corp Bhd and Kuala Lumpur Keong Bhd (KLK). However, we feel it is too early to assess the exact impact of the flooding on palm oil output as we are unable to predict the severity and length of the on-going monsoon,” she said.

Notably, the Malaysian Meteorological Department recently predicted that the monsoon may last until mid-January, implying that the rainy season would continue in the east coast until next month.

Ng also noted that news of a group of palm oil millers in southern Peninsular Malaysia whose estimated output across Pahang, Johor and Malacca had tumbled 36% between Dec 1 and Dec 20 in the same period a month earlier may aid the recovery of CPO prices in the near term.

However, she also noted that the eventual rise in CPO prices may, however, not be sufficient to cover the loss in production from some of the affected estates.

CIMB Research noted that up to a third of Sime Darby, IOI Corp and KLK’s palm oil plantations were located in the states hit by the floods.

Meanwhile, plantation companies in Sabah and Sarawak such as Hap Seng Consolidated Bhd, Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd have no presence in affected areas.