Hot weather pushes up palm oil prices in Malaysia

Global Business

Hot weather pushes up palm oil prices in Malaysia

Malaysia is facing unusually hot weather. Extreme droughts have led to closure of schools, and have left farmers on the dry.

But one industry is benefiting from the heat, a mainstay of Malaysia’s economy.

CCTV’s Rian Maelzer reports from Kuala Lumpur.

Hot weather pushes up palm oil prices in Malaysia

Hot weather pushes up palm oil prices in Malaysia

Malaysia is facing unusually hot weather. Extreme droughts have led to closure of schools, and have left farmers on the dry. But one industry is benefiting from the heat, a mainstay of Malaysia's economy. CCTV’s Rian Maelzer reports from Kuala Lumpur.

The current El Nino has brought a host of problems, including contributing to the haze from Indonesian fires that blanketed Malaysia for nearly two months late last year.

Lately, temperatures have been well above normal, and rainfall low, drying up reservoirs and causing drought in some areas. That’s likely to reduce the country’s rice harvest.

But there’s one industry that isn’t complaining, palm oil which is worth billions of dollars a year to Malaysia.

Since a peak in 2012, prices nearly halved on the back weakening global demand. Malaysia’s palm oil stockpile climbed to a record nearly 3 million ton. But El Nino is improving that picture.

“This El Nino has caused dryness in the palm oil estate, and as a result of the extended dryness of over more than three or four months, then the trees get stressed and as a result they produce less fruits, and as a result of less fruits we get less oil.” Alan Lim Seong Chun, analyst of MIDF research said.

That has halved the stockpile, and helped to sharply drive up the price of crude palm oil. And it’s that price, not the amount of oil produced, that has the biggest impact on palm oil companies’ profit margins, which are going to be much higher in the coming months.

The flip side to that is that consumers, including price-sensitive ones in the biggest markets for palm oil, China and India will have to pay more for their staple oil. And El Nino will see Malaysians also paying more for fruit, vegetables, rice, even fish.

  • Yap Pak leong

    With El Nino dryness there will be 30% to 50% less production of oil palm fruit in the next 36 months as oil palm trees will take that long to recover. Hence production cost per metric ton will go up 25% due to spread of overheads over less metric tons. Although prices go up, margin of profit will not go up much and fall in production and export duties and other taxes kicking in on reaching price threshold will additionally hurt seriously the oil palm plantations.