Felda's 2016 palm output to drop more than expected on El Nino: CEO

[KUALA LUMPUR] Palm oil production by Felda Global Ventures is expected to drop by a more-than-expected 6 per cent this year as an El Nino weather pattern curbs yields across its plantations, Chief Executive Mohd Emir Mavani Abdullah told Reuters.

Lower output by the world's third-biggest palm plantation operator could underpin prices of the tropical oil. Felda's Mohd Emir sees benchmark Malaysian futures averaging RM2,200-2,400 (US$520-$567.38) in 2016, below current levels but mostly higher than last year's average of RM2,275.

"Felda faces the threat of severe disruption in production due to the El Nino phenomenon and some of our plantations in East Malaysia, especially Sabah, are quite badly hit," Mohd Emir wrote in an email, adding that Sabah represents nearly a third of the company's total production area.

Mohd Emir had earlier expected a 1-3 per cent annual drop in 2016 output after rains towards the end of 2015 spurred hopes of a limited impact on yields from a dryness linked to El Nino. But indications now are of significant damages from what analysts have termed a "monster" El Nino event.

El Nino brings scorching heat across Southeast Asia and hurts palm's fresh fruit yields. While leading analysts expect growth in global production of the tropical oil to slow in 2016, they believe recent rainfall could mute the impact, capping price gains.

Palm oil prices are expected to trade at RM2,500-2,600 per tonne for the first quarter to March, higher than an earlier estimate of RM2,300-2,400, Mohd Emir said.

Prices will ease once the El Nino begins to recede from the second quarter, he added.

Benchmark palm oil futures on the Bursa Malaysia Derivatives Exchange are currently at RM2,522, near a two-year top of RM2,648 hit earlier this month.

REUTERS