Monsoon Weather May See Malaysian Palm Oil Production Sharply Fall

Monsoon Weather May See Malaysian Palm Oil Production Sharply Fall

The MBP for Crude Palm Oil CIF Rotterdam [Mintec Code: CPOR] was assessed at $979.50/mt on 22nd December, down $10.00/mt on the week, due to sellers looking to offload some volumes before the holiday season. Despite the price decrease, market players are concerned about production and supply in the coming months.

Monsoon season rains have caused significant flooding in Kelantan and Terengganu which account for 8 to 9% of Malaysia’s crude palm oil production. Heavy rainfall has been forecast for the nearby province of Pahang, which produces circa 30% of crude palm oil within Malaysia. If the flooding continues to occur, it may mean that the harvesting of palm fruit and the processing of into palm oil is nearly impossible. This could cause December and January palm oil production levels to drop sharply. In this scenario, global palm oil stock levels would become tight in the coming months and may push prices up from current levels on the limited supply of the commodity.

A trader commented to Mintec, “The flooding in Kelantan and Terengganu is a real issue and it’s fairly obvious that December and January production is down. Things get much more interesting if Pahang floods. The flooding could mean circa 40% of Malaysian palm oil production out of commission for at least a month or two. Even with a decline in Chinese buying, stocks would begin to move lower at a rapid pace. Prices would have to move up into the 5,000 MYR per metric tonne range again.”