Malaysian palm oil producer IOI Corp posted a first-quarter net profit of 104.8 million ringgit ($23.77 million) on Friday (18/11), aided by higher contribution from property and plantation businesses and lower foreign currency translation losses. (Antara Photo/Wahdi Septiawan)

Global Palm Oil Output to Recover in H1 2017 as El Nino Effects Fade: Fry


SEPTEMBER 24, 2016

Kuala Lumpur. Global palm oil production will recover in 2017, increasing by 4 million tonnes in the first half of next year from the same time in 2016, said leading industry analyst James Fry, after the crop damaging El Nino weather event reduced output this year.

Rising palm oil production could dampen benchmark palm oil prices, which hit a five-month high on tight market supplies in early trade on Wednesday (21/09).

Palm futures rose 0.2 percent to 2,683 ringgit ($653) per tonne at the midday break on Thursday, up 3.4 percent so far this week.

"The 2017 first half rebound will almost offset the 2016 first half collapse," said Fry, chairman of commodities consultancy LMC International, in a speech at the industry conference Globoil India on Thursday.

Fry also forecasts a rise in global palm production in the second half of 2017 by over 2 million tonnes from the corresponding period this year.

2016 palm oil production was impacted by the El Nino, a warming of the Eastern Pacific Ocean waters which brings dry weather across Southeast Asia and lowers palm yields in top producers Indonesia and Malaysia.

Fry last forecast in March that global palm oil production could fall by over 2 million tonnes this year, and saw Southeast Asian output declining by 4 million tonnes.

For the last quarter of 2016, Fry estimates Malaysian inventories to climb to a range between 1.75 to 1.80 million tonnes.

"Crude palm oil output will resume year-on-year growth, but we have the seasonal slowdown after November," he said.

"Malaysian Palm Oil Board (MPOB) stocks will settle at 1.75-1.80 million tonnes in October-December, and will then fall back until they soar from Q2 onwards."

Palm oil end-stocks in Malaysia, the world's No. 2 producer after Indonesia, fell to a near six-year low of 1.46 million tonnes in August, according to data from industry regulator MPOB.

Indonesian output may fall by 0.6 million tonnes in the third quarter this year, but could rise by 0.2 million tonnes from October to December, Fry said.

Fry also forecast that CPO prices would ease to $650 a tonne on a free-on-board basis in November and December, and "move up briefly in January to February" before falling to $550 next year, based on a Brent crude oil forecast of $45 per barrel.

CPO was trading at $705 a tonne on a free-on-board basis on Thursday.