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AmInvestment Bank has projected that the El Niño weather phenomenon could 'severely' impact palm oil production in Malaysia and Indonesia, leading to reduced fruit yields and an increase in crude palm oil prices. The Malaysian states of Sabah and Sarawak are anticipated to be among the most affected by the associated soaring temperatures.
The research house highlighted that Sarawak faces a 'severe' impact from El Niño due to its extensive peatlands, which tend to accentuate heat. Kalimantan and Sumatra in Indonesia are also likely to be hit, along with areas featuring less forest coverage.
Conversely, estates situated near high-value forest regions are expected to suffer less from El Niño, as noted by the bank in a client brief. Malaysia and Indonesia are currently bracing for record-high temperatures, with meteorologists warning that the latest El Niño event, characterized by drought and heatwaves, is shaping up to be one of the strongest on record.
This phenomenon could lead to the shriveling of oil palm trees and a subsequent reduction in production over the course of a year in both nations, which collectively account for nearly 90% of the global supply of this edible oil, used in a vast array of products from soap to ice cream.
According to AmInvestment, oil palm trees in the youngest and oldest age brackets are expected to be hit more severely by El Niño compared to those in the middle age range of six to twenty years. Young oil palm trees are more vulnerable due to their shallow root systems, while older trees are likely to experience abortion of female flowers. However, younger trees are also expected to recover faster than their older counterparts.
Overall, AmInvestment concluded that unfavorable weather conditions, coupled with Indonesia's B50 biodiesel policy, would boost crude palm oil prices. The bank is currently reviewing its 2027 price forecast of RM4,400 per tonne. Benchmark palm oil futures are presently trading at RM4,662 per tonne on Bursa Malaysia Derivatives. Palm oil prices have already climbed by 15% since the beginning of the year, a rise further bolstered by a rally in petroleum prices following the geopolitical conflict in the Middle East in late February.
Source: klsescreener.com