Palm Oil Futures in Malaysia Advance After El Nino Forecasts

July 13 (Bloomberg) -- Palm oil futures in Malaysia gained amid concerns that an El Nino that’s forming over the Pacific Ocean may curb production of the tropical oil as the weather pattern parches parts of Asia.

The weather event may delay monsoon rains in Asia, the U.S. National Oceanic and Atmospheric Administration said on July 9. About 90 percent of global palm oil production comes from estates in Indonesia and neighboring Malaysia.

During the last El Nino in 2003-2004, palm oil prices “rose by close to 100%” even as output gained 6 percent, RHB Research Institute Sdn. analyst Hoe Lee Leng said in a report dated today. Still, RHB maintained a price forecast of 2,300 ringgit ($640) a metric ton this year until the severity of the current El Nino has been determined.

Palm oil for September delivery added as much as 1.2 percent to 2,035 ringgit a ton on the Malaysia Derivatives Exchange, and traded at 2,018 ringgit at 12:22 p.m. local time. So far this year, the price has averaged about 2,182 ringgit.

The Japan Meteorological Agency said on July 10 that sea- surface temperatures indicated that an El Nino weather event was taking place and may continue until Japan’s winter. Australia’s Bureau of Meteorology also said on July 8 that there were indications that an El Nino was developing.

‘Profit Windfall’

“El Nino has historically been a profit windfall for plantation companies,” Credit Suisse analyst Tan Ting Min said in a report published today. Still, rising palm oil stockpiles in Malaysia and waning demand from importers, including India, may push prices lower, Tan wrote.

Malaysia’s palm oil production climbed 3.6 percent 1.446 million tons in June, pushing inventories to 1.41 million tons from 1.37 million tons in May, according to Malaysian Palm Oil Board data released on July 10. Exports climbed 3.1 percent to 1.27 million tons.

Palm oil imports by India, the world’s biggest buyer of edible oils after China, may be “unsustainable,” as the country completes restocking, Tan wrote.

India’s palm oil purchases from Malaysia, the second- largest producer, rose to 23,040 tons in the first 10 days of July from 2,200 tons in the same period in June, according to cargo surveyor Societe Generale de Surveillance on July 10.

To be sure, average palm oil prices may fall to 1,800 ringgit a ton in the second half from 2,250 ringgit in the first six months on rising inventories and a slower global economic recovery, Maybank Investment Bank Bhd. said in a report today.

Palm oil also gained as soybean oil advanced. The contract for December delivery rose as much as 0.7 percent to 33.69 cents a pound on the Chicago Board of Trade after analysts and traders surveyed by Bloomberg News forecast that last week’s price drop may lure importers and investors this week.