Malaysia palm oil output falls surprisingly steep 13%


January decline sends derivatives prices higher -- for now

Malaysia's crude palm oil production fell more than expected in January, pushing up futures prices on Friday.

Output declined 13% on the month, to 1.27 million tons, according to data released by the Malaysian Palm Oil Board. A fall of 7% had been projected in a CIMB Research note issued on Feb. 4, based on a survey of 19 plantation areas around the country.

Production in Malaysia -- the world's No. 2 source of palm oil after Indonesia -- has been weakening since October due to the effects of an El Nino-induced drought.

Inventory of the oil dropped alongside production, falling 7% to 1.54 million tons.

The declines pushed the benchmark crude palm oil futures on Kuala Lumpur's Bursa Malaysia Derivatives 1.1% higher to 3,132 ringgit per ton at midday, for April deliveries.

This continues the trend, seen in recent months, of reduced output nudging prices higher. Physical settlement prices calculated by the palm oil board surpassed the 3,200 ringgit per ton level in December -- a four-year high. The price was last quoted on Wednesday at 3,316 ringgit a ton.

CIMB expects palm oil producers, including Sime Darby, to report "strong" earnings for the quarter through December, with higher palm product prices more than offsetting lower output.

Even so, the rise in prices might not hold as the El Nino effect fades in the next few months, Capital Economics said. The research company predicts palm oil prices to decline gradually to 2,600 ringgit per ton in the fourth quarter of the year.

Palm oil exports in January grew a modest 1%, to 1.3 million tons, thanks to primary buyers China and India.


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