15/3/07 (Bloomberg) -- PT Astra Agro Lestari, Indonesia's largest plantation company, will have its smallest palm oil crop in five quarters in the three months to March as the impact of drought lingers, President-Director Maruli Gultom said.

``February to March was a drastic drop,'' Gultom said in an interview March 13. The second quarter ``won't be much better.'' Gultom also said he'll retire next month when he turns 60.

Palm oil companies in Indonesia and Malaysia, which account for 85 percent of global supply, are trying to expand output to benefit from rising demand. The price of the commodity, used in foods, as a cooking oil and an alternative fuel, has also gained on the impact of an El Nino-induced drought in Indonesia.

``The impact of a prolonged drought, which hit their output in the fourth quarter, would still be felt in the first quarter because there is a six-month lag,'' Bonny Setiawan, an analyst at PT Danareksa Sekuritas, said yesterday in Jakarta.

Shares in Jakarta-based Astra Agro almost doubled in the 12 months to yesterday, and are the sixth-best performer on the LQ45 Index of most widely held stocks on the Jakarta Stock Exchange in that period. The shares rose 50 rupiah, or 0.4 percent, to end at 12,300 rupiah today, paring an earlier gain of as much as 200 rupiah, or 1.6 percent.

Gultom declined to give production estimates for the first and second quarters of this year. Output in the first quarter of 2006 was 223,000 tons, and 247,718 tons in the second, according to the company's Web site.

Astra Agro produced 205,984 tons of palm oil in the final three months of last year, 12 percent lower than a year earlier, when production was 234,475 tons. The decline was caused by the impact of the drier-than-usual weather.

`No Growth'

``There will be no growth this year,'' Gultom said March 13 in Kuala Lumpur, adding that he is sticking with the company's full-year forecast, issued Feb. 27, for 920,000 tons of palm oil in 2007. Production was a record 917,885 tons last year.

``When the weather is dry, flowering is affected within eight months,'' Gultom said. ``El Nino started in October, so in the second quarter, you'll see an impact.''

El Nino weather patterns can strike every four to seven years and parch parts of Asia, crimping agricultural output. The events are caused by a warming of the equatorial Pacific Ocean.

Prices Gain

Concern over disruptions to Indonesia's palm oil supply from the drought helped to lift prices on the Malaysia Derivatives Exchange by 27 percent in the past six months. The contract, which is the regional benchmark, gained as much as 9 ringgit, or 0.5 percent, to 1,954 ringgit a ton today, and was at 1,946 ringgit ($555) at 12:30 p.m. in Kuala Lumpur.

Thomas Mielke, chief editor at OilWorld, a trade publication, forecast yesterday at a conference that Indonesia would produce 17.1 million tons of palm oil this year, surpassing Malaysia as the biggest supplier. Malaysia's government is targeting output of 16.5 million tons this year.

Mielke's forecast for Indonesia would have been higher if not for the dry weather caused by the El Nino, which affected flowering and fruit production. The damage done by the drought lowered his national output forecast by 300,000 tons, he said.

Monsoon rains in parts of Indonesia were less than normal, according to maps issued in January by Indonesia's Meteorological and Geophysics Agency.

Peak Years

Astra Agro's oil palms, located in Sumatra, Kalimantan and Sulawesi, average 11 years in age, and will continue to have peak productive years for three more years, Gultom said. Sumatra and Sulawesi are Indonesian islands, while Kalimantan is the Indonesian portion of Borneo island.

For the full year, Astra Agro's palm oil output will be little changed from 2006 as palms starting to yield fruit in Central Kalimantan from expanded cultivation starting in 2003, make up for the drought-related losses, Gultom said. Oil palms take about four years to become productive.

Andreas Bokkenheuser, a plantation analyst at UBS Securities based in Jakarta, forecasts Astra Agro's 2007 production dropping 1.4 percent to 905,000 tons this year. That's 15,000 tons lower than the company's full-year estimate.

``Astra Agro has reached peak maturity'' for most of its plantations, Bokkenheuser said. Still, he recommends investors buy the company's stock for its management and expansion plans.

The company, which has 231,000 hectares (570,800 acres) of oil palms, will add 30,000 hectares of the crop in East Kalimantan and Central Sulawesi provinces each year for the next four years, Gultom said. Astra Agro also cultivates rubber and coffee.

After stepping down as president-director of Astra Agro in April, Gultom said he will hold the position of director of plantations at the parent company, PT Astra International.

Astra International shares declined 250 rupiah, or 1.8 percent, to 13,650 rupiah today in Jakarta.