Malaysia tallies flood damage as palm reserves seen dropping

Floods that hurt palm oil production across Malaysia will exacerbate a seasonal decline in output and help to cut inventories, according to CIMB Investment Bank Bhd., which said that it expected prices to remain firm.

The inundation affected about 184,000 hectares (455,000 acres), or about 3.5 percent of the country's total planted area, with the states of Kelantan, Pahang and Terengganu worst-hit, analyst Ivy Ng wrote in a report dated today. Output may have dropped 20 percent to about 1.4 million metric tons last month from November, Ng said, citing an estimate from Plantation Industries and Commodities Minister Douglas Uggah Embas.

Palm oil rallied this week to the highest level in almost two months on concern the wetter-than-usual weather that stretched from southern Thailand, through Malaysia and into Indonesia may hurt supplies. The floods displaced hundreds of thousands, damaged infrastructure and prompted the government in Malaysia to prioritize flood-mitigation works. The country is the world's largest palm oil producer after Indonesia.

"We need an immediate assessment of the damages," Deputy Prime Minister Muhyiddin Yassin was cited as saying by the New Straits Times today. Infrastructure, such as roads and bridges, was affected, according to Muhyiddin, who was in Perak state overseeing flood-relief efforts.

Palm oil for March delivery ended 0.8 percent higher at 2,284 ringgit ($650) a ton on Bursa Malaysia Derivatives, extending gains to 1.5% this week. The price rallied to 2,308 ringgit on Dec. 29, the highest since Nov. 4. Last month it advanced 4.3 percent, paring an annual decline, as the floodwaters spread.

"The flood and the seasonally lowproduction season is likely to exacerbate the drop in crude palm oil output in the December 2014-January 2015 period, leading to lower palm oil inventory," CIMB's Ng wrote in the report dated Jan. 2 "This will be positive for nearterm crude palm oil prices."

The flooding affected about 23,730 hectares of estates run by Felda Global Ventures Bhd. (FGV), or 6.3 percent of the company's total planted oil palm estates, and the group estimated losses of about 21 million ringgit, Ng wrote.