PUCHONG: IOI Corporation Bhd executive chairman Tan Sri Lee Shin Cheng expects crude palm oil (CPO) prices to rise to as high as RM3,000 per tonne this year due to strong demand and the El-Nino dry weather phenomenon that will affect production yield.

“The demand is very strong as palm oil has proven to be one of the best vegetable oils,” Lee told reporters on the sidelines of the official opening of a Hong Leong Bank branch at Bandar Puteri yesterday.

The plantation group expects an 8% drop in production stemming from the El Nino. Last year, its output came close to four million tonnes of fresh fruit bunches and one million tonnes of CPO.

“The drop is much localised as sometimes it is affected by the El Nino and sometimes it is affected by shortages of workers,” Lee said.

In contrast to Lee’s bullish view, the CPO three-month futures dipped below RM2,500 to close at RM2,495 yesterday.

However, Lee reckons the price weakness could be temporary amidst the strong demand for the edible oil.

Some analysts attributed the drop in CPO futures partly to the strengthening ringgit against the US dollar. The ringgit has gained slightly more than 6% against the greenback year to date from RM3.4265 on Dec 31, last year to RM3.2088 yesterday.

Nonetheless, in the US dollar term, the CPO price is also heading south. It was quoted at US$744.25 yesterday, down from the peak of US$797.50 last month.

This article appeared in The Edge Financial Daily, April 9, 2010.