MPOB: Floods to hit palm oil output in December by up to 25%

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KUALA LUMPUR (Dec 31): The floods which has forced nearly a quarter of a million people to be evacuated in the East Coast, would reduce palm oil output by 15% to 25% to 1.4 million tonnes in December from 1.75 million tonnes last month, said Malaysian Palm Oil Board (MPOB) director-general Datuk Dr Choo Yuen May.

Crude palm oil (CPO) stockpiles in November stood at 2.27 million tonnes, and is expected to decline to 2 million tonnes by the year-end, she told a press conference after a briefing on incentives for rubber production by the Malaysia Rubber Board today.

Plantation Industries and Commodity Minister Datuk Amar Douglas Uggah Embas said a total of 190,600ha of oil palm plantations across the country owned by both smallholders and major plantation players, have been affected by the floods.

"A total of 7,500 smallholders covering an area of 24,000 ha in seven states namely Pahang, Terengganu, Kelantan, Johor, Perak, Selangor and Sabah have been affected by the floods," he said.

"(This is on top of) some 230 plantation companies (with estate exposure) covering 165,000ha across Pahang, Terengganu, Johor, Kelantan and Perak," he added.

But a decline in palm oil output has helped push up CPO prices, which Uggah said have been showing an upward trend and he hopes this will continue. Benchmark March contract is currently trading at RM2,276 per tonne.

According to analysts, CPO prices are likely to get a lift in the near-term as the current flood crisis negatively impacts the harvesting and processing of palm oil.

They said however, the lower fourth-quarter earnings outlook should keep upside limited for planters’ share price in the short term as the increase in CPO prices may not be able to cushion the losses in production.

Uggah is optimistic about the sector's outlook, saying as the major players in the palm oil sector are big companies, these companies would be able to handle the damage inflicted by the floods. Malaysia is targeting CPO production to hit 20 million tonnes next year.

"The sector is resilient. For smallholders, MPOB is looking at ways and means to minimise the impact of the floods.

"We are still working out the details with the government," he added.

Uggah said the export earnings for palm oil and rubber are expected to be lower this year compared with 2013.

According to MPOB, export revenue for palm oil for 2014 is estimated to hit RM60 billion, RM3 billion less than last year.

This is largely due to the decline in CPO prices seen mid-2014, when prices dipped to a five-year low of RM1,914 per tonne on Sept 2.

But the government's decision to temporarily suspend export duty on CPO until end-February 2015 has helped pushed prices upward.

Uggah said the government has yet to make a decision on whether to extend the suspension of export duty beyond February.

As for rubber, Uggah said production is expected to decrease by 30,000 tonnes in January 2015 due to the floods. Rubber output in Thailand, the world's biggest supplier, is also expected to decline by 100,000 tonnes next month.

Malaysia is targeting rubber production to hit 700,000 tonnes in 2015.

Uggah said overall, all production of commodities have showed a dip in prices, save for pepper which is trading at RM38 per kg.

He attributed the uptick in prices of pepper due to a shortage in supply.

Earlier, Uggah said the rubber production policy to be implemented from next month, will see a payout of 30 sen to smallholders when monthly average prices of cuplumps hit RM1.75 per kg or below, a maximum of 90 sen for every kg of latex based on the percentage of dry rubber content and a maximum of 60 sen for every kg of unsmoked sheets of rubber based on percentage of dry rubber content.

He said those eligible for the incentives are smallholders with official sales receipts and Rubber Smallholders Transaction Authorisation Permits (PAT-Gs). So far, 44% of 283,683 smallholders have signed up for the PAT-G.

A government policy mandates that rubber estate owners with less than 40.46ha and entrepreneurs as well as rubber tappers working in the estates of others must sign up for the permit.