Experts see fall in palm oil production in Malaysia, Indonesia due to El Nino impact

Mielke:

BALI: Experts are expecting a “dramatic change” in world palm oil production, with annual growth expected to fall for the first time next year, due to the impact of El Nino in Indonesia and Malaysia.

Reduced production in Indonesia would be cushioned by the opening of new areas, and this will cause stagnant production at about 33.5 million tonnes from the country in 2016, but in Malaysia, it is expected to decline slightly.

Analyst Thomas Mielke said the situation was unprecedented, and it would be the first time there would be no increase in Malaysian and Indonesian production.

“And if in this situation Indonesia steps up biodiesel production, exports from the country will also decline,” he said, referring to the country’s target to accelerate biodiesel production and consumption next year.

While the overall world production will still increase due to higher production in Thailand, Africa and in America, he said it would be marginal at only about 200,000 or 300,000 tonnes.

Palm oil production sees an average increase of about 3.4 million tonnes per year.

Speaking at the recent 11th Indonesian Palm Oil Conference here, Mielke said he expected prices to be up by about US$150 per tonne from mid Oct this year to between US$750 and US$770 in the next six months.

“The global market is facing a production deficit, and this production deficit could become very big if the biodiesel mandates are carried out. We believe that world market supplies are sufficient only for an Indonesian biodiesel production of 2.5 or 2.7 million tonnes in 2016,” he said. He expects palm oil prices to rise to about US$700 or US$750 dollars by April 2016.

Plantation research and consulting company Ganling Sdn Bhd director Ling Ah Hong said their analysis had shown that the current El Nino was among the strongest of the weather phenomenon.

“Based on the effect on rainfal patterns in South-East Asia, especially in Indonesia and Malaysia, we expect that palm oil production will shrink substantially in 2016,” he said.

He expects Indonesian production to fall to 30 million tonnes from 31 million tonnes in 2015, and Malaysian production to fall by about 0.8 million tonnes to 90 million tonnes.

“This sharp reduction in supply will definitely affect the supply balance of palm oil and result in a price recovery in 2016,” he said.

Indonesian Palm Oil Association (Gapki) executive director Fadhil Hasan expects the effects of El Nino to reduce Indonesian palm oil productivity in 2016 by between 3% and 5%.

In 2016, he added, the estimated palm oil exports from the country would either decline or remain stagnant at about 23 million or 24 million tonnes.

This, he said, would be in line with increased domestic consumption by about one million tonnes in 2015, and by about three or four million tonnes in 2016, in line with the country’s biodiesel mandate.

The factors which will influence prices next year, he said, will be the implementation of Indonesia’s biodiesel programme, world crude oil prices, the El Nino phenomenon and the impact of the Council of Palm Oil Producing Countries (CPOPC).