09/04/2010 (The Star Online), Puchong - IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng projects the group’s palm oil output may drop 8% this year as unusual weather patterns and labour woes affect production at some estates.

Last year, fresh fruit bunches (FFB) production at IOI Corp’s estates stood at an estimated 3.6 million tonnes. Based on an extraction rate of slightly above 21%, the group’s crude palm oil (CPO) production amounted to about 770,000 tonnes.

The drier-than-usual weather due to El Nino and shortage of plantation workers were “very localised” issues, Lee told reporters after attending Hong Leong Bank Bhd’s new branch official opening yesterday.

On March 31, plantation giant Sime Darby Bhd had projected that its palm oil production would drop 7% this year due to freak weather.

 Weaker production and strong demand will continue to support prices going forward, and Lee is sticking to his previous forecast of between RM2,800 and RM3,000 a tonne of CPO for the year.

He said the current weakness in the CPO futures market was a reflection of the ringgit’s strength against the US dollar.

CPO futures on Bursa Derivatives hovered at above RM2,500 a tonne yesterday. The benchmark third-month contract had dropped 5.8% year-to-date.

MIDF Research analyst Syed Muhammed Kifni observed that crude oil futures in New York had gained 4.7% during the same period.

“If you look at the market trend in the previous year, CPO prices usually move in line with crude oil prices,” he said.

What changed this year was the ringgit’s sharp advance, up 6.6% against the US dollar since the start of the year.

This means that while companies like IOI Corp may sell their products for the same price in US dollars, they would earn less in ringgit given the unfavourable conversion rate.

Meanwhile, a poll by Reuters yesterday predicted palm oil stockpiles in the country may drop to a six-month low in March, as exports and domestic consumption rose faster than a rebound in production.

The Malaysian Palm Oil Board (MPOB) is due to release its latest monthly industry data on Monday.

Earlier this month, MPOB warned that palm oil production in the country might miss its 18.1 million tonnes target this year due to labour shortages, even as yields recovered.