Fitch: La Nina to boost FFB, CPO production in 2021

CPO price is anticipated to average at RM2,520 per tonne or higher for the remainder of 2020 and drop to RM2,352 per tonne in 2021


LA NINA is expected to boost palm’s fresh fruit bunches (FFB) and crude palm oil (CPO) production next year, says Fitch Ratings Inc.

The rating agency said the price of CPO is anticipated to average at US$600 (RM2,520) per tonne or higher for the remainder of 2020 and drop to US$560 per tonne in 2021, due to higher output coupled with the risk of lower biodiesel demand in Indonesia.

The La Nina weather pattern, which induces higher rainfall in the principal CPO producing regions of Indonesia and Malaysia, should boost palm oil fruit yields and CPO output in 2021 and reduce prices, it stated in a note yesterday.

“Higher rainfall could also lead to flooding which could hurt output and support prices in the next three to six months,” it noted.

It added that the CPO price projection for 2021 is based on the duration and intensity of La Nina, as a prolonged and strong pattern could hit the CPO output as well as other competing edible oils.

Generally, South-East Asia, South Africa, India and Australia receive above-normal rainfall due to La Nina, while Argentina, Europe, Brazil, and the southern US experience drier weather.

The weak-to-moderate pattern of La Nina is likely to improve the FFB yield due to better rainfall, while a strong pattern could trigger flooding, disrupting harvests and FFB transport to CPO mills, Fitch Ratings said.

A prolonged La Nina stretching for over five months could also affect fruit bunch development and result in lower pollination due to water-logging, affecting yields.

The last La Nina, which occurred in 2017 and 2018, was weak and followed by higher CPO output, Fitch Ratings noted.

“The average FFB yield for the 10 companies which are representative of the industry improved to over 22 tonnes per mature hectare in 2018, from below 18 tonnes per hectare in 2016,” it said.

Amid the anticipation of the monthly industry’s performance that will be released by the Malaysian Palm Oil Board next Monday, CGS-CIMB Securities Sdn Bhd analyst Ivy Ng said the CPO stocks in September is likely to stay tight with a 2% decline month-on-month (MoM) and 32% year-on-year (YoY) to 1.67 million tonnes.

Findings from a survey of palm oil areas by the CGS-CIMB Futures team revealed that Malaysia’s CPO output probably rose 2.6% MoM and 4% YoY to 1.91 million tonnes in September 2020.

Palm oil exports likely increased by 9% MoM and 22% YoY, based on average export statistics by cargo surveyors SGS Malaysia Sdn Bhd, which an increase by 11.2% MoM, Intertek Testing Services by 7.3% MoM and AmSpec Agri Malaysia by 10.5% MoM, to cater for Mid-Autumn Festival, as well as restocking activities.

“Over the past 10 years, Malaysian palm oil inventory had risen by an average of 6.3% MoM in September,” CGS-CIMB said.

On the research house’s projection of the CPO production last month, Ng said the output is expected to have risen by 3% MoM, which is weaker than the historical trends of a 4.5% MoM increase over the past 10 years.

Palm oil trading saw robust performance in September as traders continue to stock up, Ng added.

She estimated palm oil exports rose 9% MoM and 39% in September to 1.72 million tonnes which is higher than the average monthly palm oil exports of 1.55 million for September.