La Nina may affect CPO output


  • Business
  • Thursday, 26 Oct 2017

Higher inventory: MIDF Research expects October inventory for CPO to rise 4 month-on-month to 2.09 million tonnes.

PETALING JAYA: The onset of La Nina late this year could have a significant impact on palm oil production and may push crude palm oil (CPO) price to RM3,500 per tonne.

MIDF Research said in a report that production in flood prone states may be affected if La Nina is confirmed.

“If La Nina is confirmed, we expect excessive rains in Malaysia and Indonesia which usually cause floods. Overall, the news is slightly positive to palm oil price but the magnitude of impact will depend on whether La Nina eventually materialises, and its strength.

“Coupled with the labour shortage problem which is still affecting the industry, we expect CPO price to surge to RM3,500 per tonne if a strong La Nina materialises.”

The research house noted that the Australia Bureau of Meteorology (ABM) had activated its La Nina Watch on Tuesday, with a 50% chance of La Nina forming late this year.

“According to ABM, models suggest the tropical Pacific Ocean will continue to cool, making the chance of a La Nina forming at least 50%; around double the normal likelihood.

“While this means the Bureau’s El Nino Southern Oscillation outlook has shifted to La Nina watch, rainfall outlooks remain neutral due to competing climate drivers,” it said.

“Seven of the eight international climate models surveyed by the bureau suggest that sea surface temperatures will reach or exceed La Nina thresholds by November,” it added.

The ABM went on to say that “indicators need to remain at La Nina levels for at least three months to be considered an event,” said MIDF Research.

The research house also expects October inventory to rise 4% month-on-month to 2.09 million tonnes.

“Key assumptions are production increase of 3% month-on-month and export increase of 6% month-on-month. We believe 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% in export for the first 10 days of October. For production growth, we are using seasonal factor to estimate the 3% increase.”

MIDF Research is maintaining a “neutral” view on the sector but may review its CPO price assumption soon.

“Our neutral view on the sector is maintained with near-term expectation of palm price between RM2,700 and RM2,950 per tonne.”

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Business , MIDF , La Nina , CPO

   

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