Ling: ‘All indications point to an extremely strong El Nino this year, similar to the 1982, 1983, 1997 and1998 events.'

23/09/2015 (The Star) - A strong El Nino phenomenon, which is expected to hit Malaysia by the end of this year and to last until April next year, is bound to cause a major disruption to palm oil production, said industry experts.

Plantation research and consulting company Ganling Sdn Bhd director Ling Ah Hong said the last El Nino in 2009 and 2010 had caused “substantial disruption” to crop production worldwide.

“All indications point to an extremely strong El Nino this year, similar to the 1982, 1983, 1997 and 1998 events,” he said at a talk organised by the Malaysian Palm Oil Council (MPOC) yesterday.

He said the occurrence of an El Nino could result in a yield decline of between 2% and 23%.

“It is likely to cause a major disruption to palm oil supply in Malaysia and Indonesia.

“Production in 2015, however, will not be impacted, the impact will only be seen in 2016,” he added.

On prices, Ling said history had shown that El Nino was usually followed by a 15% to 125% spike due to the major disruption in supply.

In 2009 and 2010, following the El Nino, monthly prices increased by 80% and by 110% in 1997 and 1998.

“However, ample soybean supply may dampen the significant price recovery for palm oil, unless the strong El Nino also affects oilseed supply,” he said.

Meanwhile, CIMB Investment Bank regional head of plantations Ivy Ng, who also spoke at the event, said the impact on fresh fruit bunch yields and the increase in price would depend on the severity of the weather phenomenon.

Based on previous data, she pointed out that prices could go up by 13% to 40% .

She expects CPO prices to trade in the range of RM1,800 and RM2,200 per tonne in the near term.

Severe drought in the palm oil estates will have negative impact on palm oil yields, but will only be felt on a lagged basis, about six to 24 months later, Ng said.

“Our study on El Nino events revealed that Malaysian palm oil output rose at a slower rate, with a one-year lag, and CPO prices reacted positively each time.

News of the El Nino had not boosted CPO prices yet, she said, as there were sufficient stock buffers for edible oils and demand for biodiesel had been weak in 2015.

“CIMB projects CPO prices will average RM2,450 per tonne in 2016.

“We expect El Nino to act as a potential catalyst for CPO prices next year,” she said.

National Climate Centre director Jailan Simon, in his speech earlier, said Malaysia was already experiencing a moderate El Nino and it would strengthen towards to end of the year.

“I believe it will last until May next year,” he said, adding that weather in Sabah would be the most impacted.