La Nina heavy rainfall to lift palm oil prices
KUCHING: Palm oil production in Malaysia will likely be slightly affected by the heavy rainfall which is expected to hit Malaysia and Indonesia due to the La Nina weather phenomenon, which has formed in the Pacific Ocean.
With the expected disruption in palm oil production, analysts believe that this could help boost palm oil prices.
On Tuesday, the Australia Bureau of Meteorology (ABM) announced that its ENSO Outlook has been raised to La Nina, indicating that the tropical Pacific has reached La Nina levels.
However, ABM mentioned that “climate models suggest this La Nina will be weak and shortlived, persisting until early southern autumn 2018”.
The research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) opined, “We expect excessive rains in Malaysia and Indonesia which
The production in flood prone states may be affected. The news is slightly positive to palm oil price as heavy rain can cause flood and disrupt the harvesting and transport of fresh fruit bunches (FFB). MIDF Research
usually cause flood.
“The production in flood prone states may be affected. The news is slightly positive to palm oil price as heavy rain can cause flood and disrupt the harvesting and transport of fresh fruit bunches ( FFB).”
While the impact of weak La Nina is limited on palm oil production, MIDF Research believed that its impact would be more severe on soybean production in South America.
“Historically, La Nina has often led to drier plant ing seasons in South America. Hence, we believe that soybean oil price will appreciate.
“We expect palm oil price to increase to the range of RM2,800 to RM3,000 per tonne. The range has been reduced by RM100 per tonne (from RM2,900 to RM3,100 per tonne) to reflect the lower US dollar to ringgit rate,” it added.
Overall, the research team maintained a ‘contrarian bullish’ view on the plantation sector.