Wetter October seen curbing Malaysian palm oil output

KUALA LUMPUR: Malaysia's palm oil output may ease in October as wet weather delays harvesting and reduces oil extraction rates from fresh fruit bunches, planters and traders said, indicating production growth could have peaked two months ahead of schedule in August.

Lower output by the world's No.2 palm oil producer may help eat into stockpiles that have spilled over the 2 million tonne mark recently and underpin prices of the tropical oil that have slumped 18 percent this year amid a global glut of edible oils.

"Looking at the rainfall, I doubt palm oil production will peak in October," said Lingam Supramaniam, director at Malaysia-based commodities firm Pelindung Bestari.

"I think the best we saw was August. From September, it's already on the downward trend," he added.

The benchmark contract on the Bursa Malaysia Derivatives Exchange has started showing signs of recovery with a gain of about 14 percent from a more than five-year low of 1,914 ringgit ($587.48) per tonne hit early last month.

Malaysia is currently facing an "inter-monsoon season", or a shift from the drier southwest monsoon to the rainy northeast monsoon, that will last until early or middle November and is marked by frequent thunderstorms in the afternoon, Ambun Dindang from the Malaysian Meteorological Department said.

"Generally, compared to September, we can say October will be more wet," he told Reuters, adding that October's mean value of rainfall expected over Peninsular Malaysia is 200-300mm, and 200-250mm for the states of Sabah and Sarawak.

Rains and thunderstorms over oil palm-growing areas could force planters to delay harvesting and leave palm fruits on trees longer, driving up their free fatty acid (FFA) content, as well as complicate transportation of plucked bunches to mills.

A higher FFA content degrades the quality of oil produced.

Market players had initially expected crude palm oil production to dip slightly in September, resting after a 22 percent surge in August, before picking up again in October.

Dindang added that despite forecasts of an El Nino at the end of the year, signs of the drought-inducing weather phenomenon has yet to materialize over Malaysia.

"El Nino has not been established yet. The signs are not there yet, even though the forecast has been given by international agencies," he said.

Meteorology experts have pared down expectations of an El Nino. The World Meteorological Organization last month said it now sees less chance of El Nino conditions forming this year than it did three months ago, and expects only a weak event if it occurs at all.

The Australian Bureau of Meteorology said the chance of an El Nino occurring by end 2014 is 50 percent. ($1 = 3.2580 Malaysian ringgit)- Reuters