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Olam rules out La Nina as Golden Agri says drought curbs output

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There's little chance of a La Nina forming and any event is unlikely to affect commodity supplies, including helping drought-hit palm oil crops, according to Olam International Ltd.

[KUALA LUMPUR] There's little chance of a La Nina forming and any event is unlikely to affect commodity supplies, including helping drought-hit palm oil crops, according to Olam International Ltd.

"We are almost ruling out a potential La Nina," chief executive officer Sunny Verghese said in Singapore on Friday. "I don't think La Nina will be a factor in potential disruption or enhancement of supplies in different parts of the world. We put the probability at a very low probability."

With the end of El Nino that brought drought to parts of South-east Asia and India, weather watchers have been waiting for a possible La Nina. Forecasters in the US last month reduced the odds of La Nina forming this year and maintained them this week, while Australia's Bureau of Meteorology has warned that any event is likely to be weak.

While the pattern can cause wetter weather in parts of Asia, palm oil crops are still struggling to recover from drought.

Mr Verghese lowered his estimate for Malaysian palm oil production to 18.25 million metric tons this year from an earlier forecast of 18.8 million tons, while raising his outlook for Indonesian output 1.6 per cent to 32.6 million tons.

Prices will probably trade between US$550 and US$650 a ton in the near term and be supported over the next month as China and India replenish domestic stockpiles, he said at a briefing in Singapore.

Palm oil futures climbed to a two-year high in March as one of the strongest El Ninos on record caused dry weather in Indonesia and Malaysia, which together make up about 86 per cent of global supply. Futures fell into a bear market in July and have since rebounded 15 per cent on signs demand is increasing. Palm oil for October delivery traded 1.5 per cent higher at 2,520 ringgit a ton on Bursa Malaysia Derivatives on Friday.

While production is set to increase in the second half, the recovery of oil palms from El Nino is slower-than-expected, according to Rafael B Concepcion Jr, chief financial officer at Golden Agri-Resources Ltd. Full-year output at Indonesia's top producer is set to drop by 15 per cent to 20 per cent, he said on an earnings call Friday.

Wilmar International Ltd, the world's largest palm oil trader, said on Thursday that yields at its plantations slumped 29 per cent in the second quarter and fresh-fruit production dropped 32 per cent due to El Nino.

Yields may only pick up from September, according Zakaria Arshad, chief executive officer of Felda Global Ventures Holdings Bhd. Crude palm oil production at the world's biggest producer may decline 10 per cent to 15 per cent this year, while total Malaysian output may drop to as low as 17 million tons from a record 20 million tons in 2015, he said in an interview last week.

Palm oil prices may average 2,400 ringgit to 2,500 ringgit and rise further if an extreme La Nina disrupts soybean supplies, he said.

BLOOMBERG