Palm Oil Output in Malaysia Slumps Most Since 2006 on Floods

By Ranjeetha Pakiam

After the deluge, the reckoning. Palm oil output in Malaysia fell by the most in eight years after floods hit plantations in the second-largest producer, according to official data that showed a bigger decline than expected.
Output tumbled 22 percent to 1.36 million metric tons last month from November, the biggest drop since December 2006, the Palm Oil Board said today. That compares with a 1.46 million-ton estimate in a Bloomberg survey last week. Reserves fell 12 percent to 2.01 million tons, smaller than the 2.05 million-ton median in the survey. Exports rose 0.4 percent to 1.52 million tons, while the survey showed a 2 percent drop.
Futures surged to a six-month high last week on concerns that the worst floods in decades in Peninsular Malaysia hurt harvesting, exacerbating the impact of a seasonal decline in output in the world’s most-used edible oil. The heavier-than-usual monsoon rains
displaced hundreds of thousands, while damaging roads and bridges. Production may also be weaker in January and February, according to Chandran Sinnasamy, executive director at LT International Futures.
“The tightness in nearby oil supplies will support the price,” Chandran said by phone from Kuala Lumpur. “At the same time, poor exports for the current month will limit the gains.”
Futures rose as much as 1 percent to 2,372 ringgit ($665) a ton on Bursa Malaysia Derivatives today and ended 0.6 percent higher at 2,363 ringgit. Prices climbed to 2,383 ringgit on Jan. 9, highest level since July.

Lagged Impact

Exports dropped 13 percent to 355,846 tons in the first 10 days of January from the same period a month earlier, surveyor Intertek said today. Malaysia’s palm imports fell 8.7 percent to 90,353 tons last month from November, board data showed.
The year-end monsoon that hit the east coast of Peninsular Malaysia resulted in the worst floods since 1972, according to Maybank Investment Bank Bhd. Prolonged flooding and heavy rain will result in lower yields in the months to come as pollination will be affected, with a lagged impact on production, although it’s hard to quantify, analyst Ong Chee Ting, wrote in a report dated Jan. 6.
Output in the three east coast states on Peninsular Malaysia hit by floods -- Kelantan, Terengganu and Pahang -- fell 28 percent in December from a year earlier, board data show. Production for the whole country in 2014 climbed 2.3 percent to 19.67 million tons from 19.22 million tons in 2013.

More Rain

Isolated rains and thunderstorms are predicted over parts of Sabah and Sarawak until Jan. 18, while Johor may see intermittent showers, the Malaysian Meteorological Department said on its website. The three states are the largest producers in the country.
Futures will be capped as sliding energy prices and the narrow discount to soybean oil weigh on palm, Alvin Tai, an analyst at RHB Investment Bank Bhd., said by phone.
Oil extended losses from the lowest level in more than 5 1/2 years today as Goldman Sachs Group Inc. reduced its price forecasts and Venezuela called on OPEC producers to work together to spur a recovery. Palm oil’s discount to soybean oil was at $84.94 a ton today, which compares with an average of about $155 in the past five years.