The anaemic production run is likely to continue until June when the biological low cycle may be expected to end after eight months. Consumers may only be able to heave a sigh of relief from July. Replenishment of stocks may take a bit longer – possibly until September.
As a result of these factors I have been compelled to reduce my estimates of palm oil production in Malaysia and Indonesia for the oil year ending September 2016. These figures are quite alarming.
I have reduced my estimate of calendar year 2016 palm oil production in Malaysia by 1 million tonnes to just under 19 million tonnes. For oil year 2015-16, ending in September 2016, the drop will be even more drastic – by an unheard of 1.5 million tonnes, from 19.87 million tonnes to 18.44 million tonnes.
Data on Indonesia is much more difficult to obtain, examine and extrapolate. The severest effect of the El Nino has been limited to southern Sumatra and to parts of Kalimantan. The season in many parts of Indonesia is between one and two months behind Malaysia. Therefore, at this stage, I am only reducing my estimate of Indonesian production from 32 million tonnes to 31 million tonnes for calendar year 2016 and by 1.2 million tonnes for the oil year ending September 2016.
There are drought-related problems in other territories also, but these are almost insignificant compared to the ravages in Malaysia and Indonesia. Overall, when we look at the global incremental supply and demand for the oil year 2015-16, palm oil production will be lower by almost 3 million tonnes – a very daunting prospect.
I have examined the severe El Nino of 1997-98 and the damage it caused to production. These are my findings:
• The mature area expanded by 4.5% in Malaysia and by 8.5% in Indonesia (Table 1).
Source: Oil World
• The yield dropped by 8.7% in Malaysia and by 12.5% in Indonesia (Table 2).
Source: Oil World
• Production dropped by 8% in Malaysia and by 5.2% in Indonesia (Table 3).
Source: Oil World
I must caution you that the El Nino of 1997-98 was not identical to that of 2016. But it gives a good idea of whether – and by how much – production could be lower. You can see that my estimates of production in 2016 are quite conservative.
