KUALA LUMPUR: Palm oil is expected to trade at 2,300-2,400 ringgit per tonne in the first quarter of 2016, as recent rain patterns suggest a limited impact on yields from El Nino, the chief executive of plantation firm Felda Global Ventures said.
In October, Mohd Emir Mavani Abdullah said the El Nino weather pattern was likely to cut palm oil output in Indonesia and Malaysia by 5-6 percent in 2016 and lift prices to 2,500 ringgit ($569.74) per tonne in the first quarter.
“Looking at the current rain patterns, it could be that the El Nino will come in a very subtle way, that could be a sign of increase in production in the last quarter of this year, and that will increase the stock and affect the price,” Mohd Emir told Reuters on Wednesday.
Malaysian palm futures on the Bursa Malaysia made their biggest one-day climb in over a week after sinking to a three-week low earlier on Wednesday on weak exports, closing 1.09 percent higher at 2,317 ringgit ($528.03) per tonne. Slow demand and competition from soyoil is seen capping gains for palm, forecast to end the year at 2,300 ringgit.
However, Felda’s palm oil output in 2016 could drop by 1-3 percent year-on-year if the El Nino does hurt yields, he added. Felda is the world’s third largest palm plantation operator.
The El Nino weather phenomenon typically brings dry weather to Southeast Asia, impacting palm yields and lowering output. Indonesia’s palm oil association forecasts a 5 percent drop in the country’s 2016 output due to El Nino, while leading analyst Dorab Mistry sees next year’s global palm oil output growing by one million tonnes less than expected.
Regarding Indonesia’s B20 biodiesel mandate, Mohd Emir said it could consume up to one million tonnes if implemented.
“I’m quite optimistic because of the levy the Indonesian government put into crude palm oil, they would be able to implement it pretty fast and stocks would start to come down in February or March next year,” he said.
“Malaysia and Indonesia combined, we have nearly 5 million tonnes of stocks of CPO now in the market. Any depletion will impact prices positively.”
Indonesia is encouraging biodiesel usage to create new demand for palm oil, which is used for blending into biodiesel. The world’s top palm producer began collecting a $50 per tonne levy on crude palm oil exports in July to fund higher biodiesel subsidies, and raised the minimum bio content in biodiesel fuel used for transport to 15 percent from 10 percent.
This will rise to 20 percent in 2016 and 30 percent in 2020.
Indonesia’s palm oil association forecasts the country’s biodiesel consumption to reach 1.25 million kilolitres in 2015.
