By Adam Martin
BALI, Indonesia--If the weather phenomenon known as El Nino continues into
the second quarter of 2016 as predicted, palm-oil output in Indonesia could fall
by 9% and production could be down by 4.5% in Malaysia, an influential
market-watcher said Friday.
At best, palm-oil production is likely to be flat on year in 2016 even if
weather conditions return to normal by the end of 2015, said James Fry, chairman
at research firm LMC International.
If production remains flat and if Brent crude sits at around $45 a barrel then
palm oil cash prices should be above $600 a ton by the end of first quarter
2016, and by June should be between $50 and $75 higher, he said.
But if El Nino plays out as predicted, with drought conditions remaining into
the second quarter of 2016, then prices could reach $800 a ton and the "world
would have to rely on soy oil to fill some of the shortfall in crude palm oil
supplies," Mr. Fry said.
Palm-oil futures have recovered from lows seen in August, on concerns that dry
conditions brought about by El Nino and haze from forest fires could reduce
production over the coming months. On Thursday, refined, bleached and deodorized
crude palm oil for February was trading in the cash market at $567.50 a ton.
International climate models suggest that the El Nino is approaching its peak
and will decrease in the first quarter 2016. However, water temperatures in the
Pacific are unlikely to return to normal until the southern hemisphere's autumn
begins in March, according to Australia's Bureau of Meteorology.
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By Lucy Craymer
BALI, Indonesia--There is currently no shortage of palm oil stocks "but this
is going to change very quickly" and prices could rise more than 20%, said
Thomas Mielke, a widely regarded commentator in the industry.
Palm oil prices could rise to $750 to $770 a ton as supply tightens, said Mr.
Mielke, an executive of researcher Oil World, at the 11th Indonesian Palm Oil
Conference. Crude palm oil prices for February were trading around $567.50 a ton
Thursday.
"For people who are waiting for falls in production--which are reported with a
delay--run the risk of being too late...Supplies are not going to tighten until
the January quarter but then they are going to tighten quickly," he said.
Palm oil production will likely stagnate in Indonesia and contract slightly in
Malaysia, by 200,000 metric tons, as dry conditions related to El Niño put
oil palms under significant stress, Mr. Mielke said. He forecasts Indonesia will
produce 33.6 million metric tons in 2015.
It will be very difficult to meet the import demands from India, which is
growing rapidly, along with the rest of the world, and this should put pressure
on prices, he added.
Write to Lucy Craymer at lucy.craymer@wsj.com
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