Palm oil supply difficulties are exacerbated by heavy rains in Peninsular Malaysia

[ASEAN NOW Content Team]

 

On Jan. 3, crude palm oil futures increased as much as 4% on the Malaysian commodities exchange, owing to fears that heavy rains in seven Malaysian states will stifle palm oil production in the world's second-largest producer.

In December, the Southern Peninsular Palm Oil Millers Association predicted an 8.5 percent drop in output from the Peninsular Malaysian region compared to the previous month.

"It appears like East Malaysia will see lesser output, and I've heard that specific estates in Pahang and Johor would be particularly hard hit," said David Ng, senior trader at IcebergX Sdn Bhd.

 

According to figures from the Malaysian Palm Oil Board, Peninsular Malaysia accounts for more than half of the country's total palm oil production, with the balance coming from Sabah and Sarawak.

According to trade sources, manufacturing operations such as milling and transportation have been hit the most in the states of Selangor and Pahang, while harvesting work has halted in portions of Johor, as well as logistics challenges caused by state-wide road closures.

According to MPOB data, the cost of local delivery of crude palm oil in Malaysia has increased by 8% since December 15 to MR 5,232.5/mt ($1,251.50) on January 3, 2021.

 

Flood events were announced by Malaysia's national disaster management agency last month in states such as Selangor, Melaka, Johor, Terengganu, and Pahang, which are key oil palm growing states in Peninsular Malaysia.

Due to the ongoing weather interruption, supplies are not arriving in full in physical markets, but the situation should improve this month, according to Sandeep Singh, director of Kuala Lumpur-based palm oil trading firm The Farm Trade.

When viewed in the context of history, market analysts also believe the floods will have a minimal influence on production.

 

According to Marcello Cultrera, sales manager and derivatives dealer at Kuala Lumpur-based Phillip Futures, SPPOMA's low production warning is better than the market perspective, which anticipates Malaysia's December palm oil output to fall by 10% -13 percent from November's output of 1.64 million mt.

"The production in December of last year was 1.33 million mt.
This year, 1.5 million mt is expected, which is a significant change "Cultrera went on to say that, even in December, overall precipitation levels in Malindo, Malaysia and Indonesia, were comparable to past years.