Thursday, May 14, 2009

Dry spell may curb palm oil yields: IOI

Prices may hit RM3,000 in the near term if there is a strong uptick in demand, say says IOI executive chairman .

IOI Corp,(1961) Malaysia's number two planter, said palm oil yields would fall by 5 per cent due to a current warm spell and that may push prices to RM3,000 in the near term if there was an uptick in overseas demand.

Planters struggled to boost output in Malaysia last month and may continue to do so as oil palms also suffered biological stress after last year's strong harvests and low fertiliser use, IOI executive chairman Tan Sri Lee Shin Cheng said.

Malaysia, the world's second largest palm oil supplier, achieved yields at between 4 and 5 tonnes per hectare in 2008, government data showed. IOI, regarded as one of the most efficient plantations in Malaysia, achieved a yield of 6.1 tonnes, company data showed.

Hot weather leads to higher oil extraction rates as there is less water contamination but yields dry up as fresh fruit bunches are smaller and do not fully develop, plantation officials and traders have said.
"Weather will be a crucial factor. Already people are talking about a possible El Nino. The market will be very explosive if poor weather sets in during the second half of 2009," Lee said in an e-mail interview late yesterday.

"Prices may go higher if there is a strong uptick in demand. We will not discount that RM3,000 is achievable in the near term."

The benchmark July contract on Bursa Malaysia's Derivatives Exchange settled up RM64 at RM2,789 per tonne on rising hot weather fears in Malaysia and rival soyaoil producing South America.

Palm oil output in Malaysia and top supplier Indonesia generally registers double-digit growth in the second half of the year, building up stocks for the Asian festival season when top buyers India and China lock in supplies from June or July onwards.

But China appears to have kicked off its buying spree much earlier this year, with a 41.3 per cent rise in May 1-10 palm oil purchases compared to a month ago, cargo surveyor data showed early this week.

"Barring weather, it is likely that crude palm oil prices could be lower in the second half (due to higher production)," Lee said. But we still do not expect prices to decline a lot and they should remain comfortably above RM2,500."