Palm oil price surges as flood hits supply

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Palm oil and rubber advanced as flooding in Malaysia and Thailand disrupted supplies from Southeast Asia, and forecasters said that further heavy rain over the next few days will probably exacerbate the situation. Palm oil climbed for a ninth day to head for the longest run of gains in more than a decade as flooding in Malaysia hurt prospects for harvesting, compounding a seasonal slowdown in production in the largest grower after Indonesia.

The contract for March delivery rose as much as 0.8 per cent to RM2,305 a metric tonne on Bursa Malaysia Derivatives and traded at RM2,299 at 11.48am in Kuala Lumpur. A ninth day of rising prices would be the longest run since June 2002, according to data compiled by Bloomberg. Palm oil climbed to 2,308 yesterday, the highest level since November 4.

The heavy rains that flooded parts of Malaysia over the past two weeks will continue for at least another week, risking disruption to the palm oil harvest, Commodity Weather Group forecast yesterday. Malaysia evacuated more than 200,000 people as of yesterday after the worst flooding in decades left at least 10 people dead. The downpours also hurt rubber supplies from Thailand, which borders Malaysia, and boosted prices.

CIMB Research said in a report yesterday that the four worst-hit flooded states of Terengganu, Pahang, Kelantan and Perak accounted for 30% of Malaysia’s palm oil supply in 2013. Its analyst Ivy Ng noted that harvesting, milling and transportation activities as well as operations of related processing facilities in affected estates would be disrupted. She said in her report that crude palm oil output for Dec 2014 could post a larger decline from the previous month but noted that it was too early to assess the impact now.

“This will be dependent on the severity and length of the on-going monsoon. However, we expect this event to lift crude palm oil (CPO) prices in the near term,” Ng said.
Maintaining her “neutral” rating on the sector, she noted that among companies on CIMB Research’s radar, Felda Global Ventures Holdings Bhd (FGV) had the highest exposure to the flood-affected states. Rubber production in Thailand and Malaysia will contract by at least 100,000 tons a month if floods persist, IRCo Chief Executive Officer Yium said in an interview today. The group is the operating arm of the International Tripartite Rubber Council, which represents governments and exporters from Thailand, Indonesia and Malaysia.

"Prices are likely to extend the rally as heavy rain in southern Thailand and northern Malaysia cause floods," the Rubber Research Institute of Thailand said on its website today. Rains have spread to 60 per cent of Thailand's southern provinces, which account for 63 per cent of plantations, it said. 

The Malaysian Palm Oil Association, a group of growers, forecast that crude palm oil production in Malaysia fell 21% in the December 1-20 period compared to a month ago. A group of millers in southern peninsular Malaysia estimated that crude palm oil production between December 1-25 over the states of Johor, Pahang and Melaka plunged 37% from November, according to traders.