‘Southeast Asia rains to disrupt palm oil production’

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Dec 29: Heavy rains and localised flooding in Indonesia, the world’s second-largest palm oil producer, may curb output even as demand for the commodity rises, the Indonesian Palm Oil Producers Association said on Friday.

Output may fall below 1 million tonne a month in November and this month as the floods exacerbate an expected, seasonal dip in production, Derom Bangun, the association's executive chairman, said in a telephone interview.

“Flooding in Langkat in Sumatra has destroyed plantation land and hurt output from the region,” Bangun said, without giving a precise estimate of the damage. Still, “production may grow about 9%” next year, less than growth in demand.

Supply disruptions may spur palm oil prices, which closed on Thursday at their highest since 1999, boosting costs for users, including food producers. The gains may also raise the prices of rapeseed and soybeans, which can be used as alternatives. Indonesia and Malaysia account for 85% of palm oil output.

Palm oil for March delivery on the Malaysia Derivatives Exchange, the benchmark contract, fell as much as 15 ringgit, or 0.7%, to 2,017 ringgit ($571) a ton, and traded at 2,021 ringgit at 3:14 pm. The contract settled on Thursday at 2,032 ringgit, its highest close since January 22, 1999, after gaining 44% this year. Sumatra is the largest island in the west of Indonesia, an archipelago that stretches across the equator. Ten people were killed in Langkat regency, which is in North Sumatra province, after three days of flooding, the Jakarta Post reported December 26.

“People are thinking that when there's damage, supply will be disrupted,” said BV Mehta, executive director at the Solvent Extractors Association of India, a trade body that represents 800 oilseed processors. Prices were expected “to go up and up in the near future.”

Still, PT Astra Agro Lestari, Indonesia’s largest palm oil maker by value, said its Sumatra plantations, including sites in Aceh in the north and Riau in the south, had yet to be affected by the rains, according to spokesman Tjahyo Dwi Ariantono, “I can’t speculate on whether threats of flooding will materialise,” Ariantono said on Friday. “From our experience there shouldn't be flooding.”

Malaysia, the world’s top palm oil producer, may suffer a second round of floods as rains are expected to continue until the end of the month, the New Straits Times newspaper reported on Friday, citing deputy Prime Minister Najib Razak.