El Nino may increase CPO prices by 10%-15%

If the El Nino weather phenomenon does hit South-East Asia and brings about a prolonged dry spell, then palm oil prices are expected to rise between 10% and 15%.

KUALA LUMPUR: The expected onset of the El Nino weather phenomenon in June or July is expected to drive palm oil prices between 10% and 15% higher in Malaysia and Indonesia.

Phillip Futures Sdn Bhd Product Specialist David Ng said the El Nino would impact large palm oil producers, as it would drastically cut output hence reducing supply.

El Nino, a warming of the ocean surface that occurs in the period of six consecutive months, is expected to see some areas in the world experiencing heavy rainfall while others, prolonged drought.

He said if the phenomenon persisted until the first quarter of next year, global CPO prices may increase between 10% and 15% to hover around RM2,800-RM3,000 per tonne.

"Production-wise for Malaysia, we will face some difficulties, because I think output will decrease between 10% and 20% if the El Nino strikes with intense dry weather. "But, it will eventually increase prices globally due to low supply," he told Bernama.

Last year, export of palm oil products increased 4.5% to 25.70 million tonnes against an offtake of 24.59 million tonnes recorded in 2012.

Ng said although the increase in CPO prices was good news for industry players, concerns over exorbitant prices could prompt buyers to shift to cheaper substitutes such as soy oil or sunflower oil.

"Although palm oil is one of the cheapest edible oil in the market, demand was likely to be affected as spiralling prices could place the edible out of market reach, hence dampening demand," he added. – Bernama