El Nino Risks On Palm Oil Supply Outlook

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Prices may advance to a range of 2,650 ringgit ($827) a metric ton to 2,850 ringgit from August if the event occurs, Lee said in an interview in Kuala Lumpur. Futures closed at an eight-month low of 2,385 ringgit yesterday. An El Nino pattern as severe as in 1997-1998 may cut production by as much as 15 percent, Lee said, without specifying a period for the decline.

Oil palms thrive in tropical regions near the equator with rain ranging from 1,500 millimeters (59 inches) to 4,000 millimeters a year without dry periods of more than a month, according to Barclays Plc. Studies show that less than 100 millimeters over two consecutive months can reduce output by 5 percent over the next three years, while droughts longer than six months cut production by 20 percent, analysts including Ephrem Ravi and Krishan Agarwal wrote in January.

The last moderate El Nino occurred in 2009-2010, according to the Climate Prediction Centre. Malaysian output declined 3.4 percent to 17 million tons in 2010 from 17.6 million tons a year earlier, palm oil board data show.

In 1997-1998, the strongest El Nino on record back to 1950 helped push the global mean temperature in 1998 up 1.2 degrees to what was then an all-time high of 58.1 degrees Fahrenheit (15 degrees Celsius), according to the U.S. National Oceanic and Atmospheric Administration. The event in 2006-2007 caused droughts in the Asia-Pacific region, more than halving Australia’s wheat output and hurting Indonesia’s coffee harvest.

To contact the reporters on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net; Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net
To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Shamim Adam
The News Link - http://www.bloomberg.com/news/2014-06-11/el-nino-risk-dents-ioi-s-palm-oil-supply-outlook-southeast-asia.html