Malaysia's Felda says 2016 palm output to drop 17% as El Nino bites

[KUALA LUMPUR] Malaysia's Felda Global Ventures Berhad, the world's third largest palm plantations operator, said its palm oil output would likely drop 17 per cent this year as dry conditions from the El Nino weather pattern hit crops.

A broad decline in harvests around the key-producing region of Southeast Asia will boost crude palm oil prices by up to 10 per cent by August and then by as much as 20 per cent further down the road, Felda's newly-appointed chief executive Zakaria Arshad said on Monday. "Lower yields are due to the El Nino effect," Mr Zakaria said at a media briefing. The El Nino weather phenomenon dries fields across swathes of Asia.

Mr Zakaria said crude palm oil prices would climb to between 2,600 ringgit (S$833.80) and 2,800 ringgit per tonne by August this year. They stood around 2,566 ringgit on Monday.

Mr Zakaria, a Felda Group veteran of 32 years, was appointed as the company's head in a surprise move in April.

He takes over as the palm industry comes under increasing pressure from environmental groups, who blame it for chronic deforestation, as well as for a polluting haze that often engulfs chunks of Southeast Asia.

Mr Zakaria said a long-pending transaction to take a 37-per cent stake in Indonesian firm PT Eagle High Plantations Tbk for US$680 million was still under negotiation. But he added that there would not be a deal in the immediate future. "Growth will be in our existing business, not M&As, for now. We want to stop for a while - maybe until (the end of) this year - and then we will look at it again," he said.

The deal was earlier criticised by shareholders for being too expensive.

The production of palm oil, used in everything from processed foods to cosmetics, is key to the economy of Malaysia, as well as its neighbour Indonesia.

REUTERS