World palm-oil production falling for first time in 20 years

[LONDON] Global production of palm oil this year may be even smaller than previously expected, and a rally in prices, which has stalled in recent weeks, is likely to resume, Oil World said.

Palm-oil production may drop 2 per cent this year to 61.25 million metric tons, the first decline in output in more than 20 years, the Hamburg-based researcher said in an e-mailed report. The estimate was 1.3 per cent lower than a forecast made last month.

Palm-oil futures touched a two-year high in March on Bursa Malaysia as drought hit crops in Indonesia and Malaysia, the world's top producers, before retreating 9.1 per cent since then. Further price declines will probably be limited, and rallies in vegetable-oil markets may resume in the medium term, Oil World said.

El Nino is starting to fade, but the lagging effect of drought on palm trees probably will lead to lower output into next year.

"While El Nino conditions are virtually over, the impacts of the previous drought conditions have just started to show up in reduced yields and production," Oil World said. "These impacts will continue to be seen in the remainder of 2016 as well as in 2017."

Total production of eight major vegetable oils will probably stagnate in the 2015-16 season at 170.3 million tons, compared with an average increase in output of 6.2 million tons annually over the past decade.

At the same time, consumption is rising, so world stockpiles of vegetable oils may fall 8.4 per cent from last season to 24.68 million tons, according to the report.

BLOOMBERG