25/2/06 (Business Times)  -  MALAYSIA'S crude palm oil (CPO) prices are expected to get an unexpected boost from a possible appearance by the La Nina phenomenon that could curb harvesting activities and output.

La Nina is a global weather phenomenon which brings unusually heavy rains due to sustained cold ocean temperatures in the equatorial Pacific.

La Nina often occurs after El Nino (extreme drought) which causes ocean water to evaporate and then be showered back onto the earth in heavy volumes. Malaysia possibly experienced a mild El Nino in April last year.

Malaysian Palm Oil Promotion Council chief executive officer Tan Sri Dr Yusof Basiron said during La Nina, there could be heavy flooding which prevents workers from collecting the fresh fruit bunches (FFBs).

"This is positive for palm oil because rain will prevent harvesting activities."

Golden Hope Plantations Bhd group chief executive Datuk Sabri Ahmad said there is a possibility that La Nina could hit our shores.

"Crop in 2005 is already lower than earlier projected," Sabri told Business Times.

The Malaysian Palm Oil Board said for 2005, CPO production continued to increase for the seventh successive year, reaching 15 million tonnes compared with 14 million tonnes the previous year.

However, a Malaysian Meteorological Services Department official said it is too early to speculate and it could dissipate as it travels across the ocean but on the other hand, could grow into either a mild, temperate or an extreme La Nina.

Malaysia has seen exceptionally heavy downpours over the past few weeks which has also prevented rubber smallholders to go out and tap, causing natural rubber prices to spike up to more than RM7 a kg, its highest in 20 years.

Malaysia’s CPO prices have been on a roll in the past few months sustaining at the RM1,400 a tonne level mainly due to the robust global demand as an alternative energy source.

Palm oil could be mixed with petroleum diesel to generate power as part of efforts to reduce dependency on fossil fuels which has seen prices climb to near record levels.

Demand from China and India, the world’s biggest buyers of palm oil and soyabean, has also risen.

CPO futures reached RM1,480 a tonne earlier this month, its highest since September 2004 (17 months), while Malaysian production dropped to a two-year low in January 2006 and stockpiles fell to their lowest in three months.

Industry experts are now converged in Kuala Lumpur at a palm oil conference and are forecasting that CPO prices could hit RM1,600 a tonne as early as April this year.