Saturday, September 18

Strong La Nina will have significant impact on palm oil production

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KUCHING: The possibility of a strong La Nina happening soon will have significant impact on palm oil production.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), Australia Bureau of Meteorology has activated its La Niña Watch yesterday with 50 per cent chance of La Niña forming in late 2017.

“If La Niña is confirmed, we expect excessive rains in Malaysia and Indonesia which usually cause flood.

“The production in flood prone states may be affected,” MIDF Research said.

MIDF Research noted that overall, the news is slightly positive to palm oil price but the magnitude of impact will depend on whether La Niña eventually materialises and its strength.

Coupled with labour shortage problem which is still affecting the industry, the research arm expected palm oil price to surge to RM3,500 per tonne

if a strong La Niña materialises.

Moving forward, MIDF Research expected October inventory to rise four per cent month on month (m-o-m) to 2.09 million metric tonnes (MT).

The research arm believed that palm oil demand should be supported by good export growth to India as the pre stocking activity should continue.

“Our export assumption is deemed conservative as cargo surveyors’ data shows growth of 18 per cent in export for the first ten days of October.

“For production growth we are using seasonal factor to estimate the three per cent increase,” it said.

Overall, MIDF Research’s ‘neutral’ view on the sector was maintained with near term expectation of palm price to trade at between RM2,700 to RM2,950 per MT.

The floor of RM2,700 per MT was due to the research arm’s assumption that soybean oil should stay strong at 33 US cents per pound (approximately US$725 per MT) in view of the dry weather in Brazil.

“For the ceiling of RM2,950 per MT, we believe that most palm oil producers will sell forward in a significant way when price gets closer to RM3,000 per MT and hence the upside is limited at RM2,950 per MT,” it said.