MARKET DEVELOPMENT
UPDATE 1-El Nino May Push Palm Price to $700; Output Impact in 2016 -Indonesian Industry
UPDATE 1-El Nino May Push Palm Price to $700; Output Impact in 2016 -Indonesian Industry
22/05/2015 (Reuters) - The El Nino weather phenomenon predicted by meteorologists could push depressed palm oil prices as high as $700 a tonne this year, an industry group in top producer Indonesia said on Friday, although any impact on production would not come until early 2016.
The Japan Meteorological Agency confirmed last week that an intensifying El Nino had set in, threatening Indonesian farmers with the dry conditions the weather pattern typically brings to the region.
Benchmark Malaysian palm oil futures fell nearly 15 percent last year and have lost around 5 percent so far this year to trade at 2,132 ringgit ($595) per tonne on Friday.
Prices will trade between $650 and $700 a tonne in the second half due to the potential El Nino, Fadhil Hasan, executive director at the Indonesian Palm Oil Association, told Reuters.
"It's hotter than normal," Hasan said about current conditions on Indonesian palm plantations.
Malaysia's Sime Darby Bhd, the world's top oil palm planter by land size, forecast on Friday that prices would probably trade between 2,200 and 2,400 ringgit ($614-$670) over the rest of the year.
Higher palm prices could make soyoil more attractive to vegetable oil buyers, with an El Nino bringing wet weather to big soybean-planting areas in South America, helping supplies.
Palm, which is used as cooking oil as well as an ingredient for many food products ranging from biscuits to ice cream, is also widely expected to gain support ahead of the Muslim holy month of Ramadan next month.
Hasan maintained his Indonesian 2015 production and export forecasts of 32.5 million tonnes and 21.6 million tonnes respectively.
"The (El Nino) impact we are going to see, in terms of production, is going to happen next year," he said, adding that it was too early to estimate 2016 output.
In late March, palm giant Golden Agri-Resources Ltd highlighted the threat of an El Nino or a "serious water deficit" in the second half of 2015.
A strong El Nino weather pattern results in below-average rainfall in top palm producers Indonesia and Malaysia.
If it happened, El Nino was most likely to be felt by Southeast Asian palm growers from June to August, said Puru Kumaran, chief financial officer at Malaysian-based planter IJM Plantations Bhd, adding that any hit to production would be no more than 5 percent in the second quarter of 2016.
"The effect will be nine months from there, and in Q2 2016, then we will see some impact if moisture was down in a bad way," Puru said. "You need three continuous months of very dry weather to see any immediate impact."
Separately, Indonesia's government has recently announced plans for a new biodiesel funding regulation requiring exporters to pay a levy of $50 per tonne on crude palm oil.
Senior government ministers have said the levy would be implemented in the fourth week of May, but Hasan said delays in establishing guidelines and a new biodiesel fund or agency meant this would be pushed back as far as August.
"July or August ... It takes time. That's the way it is."
Indonesia's coordinating ministry for the economy was unable to give immediate comment on Friday.
($1 = 3.5820 ringgit)
The Japan Meteorological Agency confirmed last week that an intensifying El Nino had set in, threatening Indonesian farmers with the dry conditions the weather pattern typically brings to the region.
Benchmark Malaysian palm oil futures fell nearly 15 percent last year and have lost around 5 percent so far this year to trade at 2,132 ringgit ($595) per tonne on Friday.
Prices will trade between $650 and $700 a tonne in the second half due to the potential El Nino, Fadhil Hasan, executive director at the Indonesian Palm Oil Association, told Reuters.
"It's hotter than normal," Hasan said about current conditions on Indonesian palm plantations.
Malaysia's Sime Darby Bhd, the world's top oil palm planter by land size, forecast on Friday that prices would probably trade between 2,200 and 2,400 ringgit ($614-$670) over the rest of the year.
Higher palm prices could make soyoil more attractive to vegetable oil buyers, with an El Nino bringing wet weather to big soybean-planting areas in South America, helping supplies.
Palm, which is used as cooking oil as well as an ingredient for many food products ranging from biscuits to ice cream, is also widely expected to gain support ahead of the Muslim holy month of Ramadan next month.
Hasan maintained his Indonesian 2015 production and export forecasts of 32.5 million tonnes and 21.6 million tonnes respectively.
"The (El Nino) impact we are going to see, in terms of production, is going to happen next year," he said, adding that it was too early to estimate 2016 output.
In late March, palm giant Golden Agri-Resources Ltd highlighted the threat of an El Nino or a "serious water deficit" in the second half of 2015.
A strong El Nino weather pattern results in below-average rainfall in top palm producers Indonesia and Malaysia.
If it happened, El Nino was most likely to be felt by Southeast Asian palm growers from June to August, said Puru Kumaran, chief financial officer at Malaysian-based planter IJM Plantations Bhd, adding that any hit to production would be no more than 5 percent in the second quarter of 2016.
"The effect will be nine months from there, and in Q2 2016, then we will see some impact if moisture was down in a bad way," Puru said. "You need three continuous months of very dry weather to see any immediate impact."
Separately, Indonesia's government has recently announced plans for a new biodiesel funding regulation requiring exporters to pay a levy of $50 per tonne on crude palm oil.
Senior government ministers have said the levy would be implemented in the fourth week of May, but Hasan said delays in establishing guidelines and a new biodiesel fund or agency meant this would be pushed back as far as August.
"July or August ... It takes time. That's the way it is."
Indonesia's coordinating ministry for the economy was unable to give immediate comment on Friday.
($1 = 3.5820 ringgit)