Palm Oil Supplies in Indonesia Seen Disrupted by Prolonged Rains

Palm oil production in Indonesia, the world’s largest supplier, may be less than expected this year after prolonged rains disrupted harvesting and transport, according to industry groups.

Rainfall hurt crops in the first half and early in the second half, said Susanto, head of marketing at the Indonesian Palm Oil Association, whose members are producers and refiners. Production may recover through February, he said in a phone interview today. The Indonesia Palm Oil Board, a separate body, may reduce its output estimate, said Chairman Derom Bangun.

Futures traded in Kuala Lumpur advanced to the highest in more than a year and entered bull-market territory on concern that production in Indonesia and Malaysia was less than analysts predicted and that the start of the monsoon may further curb supply. PT Astra Agro Lestari, PT Perusahaan Perkebunan London Sumatra Indonesia and PT Sampoerna Agro are among companies to report lower output this year.

“People expected production in the second half to reach 60 percent of the annual total, but that seems unreachable,” said Susanto from the association known as Gapki. “Crop patterns are shifting. The peak is normally October, but maybe this year we’ll see big production through the end of the year, and even into February.” Susanto manages plantations in Kalimantan on Borneo island.

Prices climbed as much as 1.2 percent to 2,624 ringgit a metric ton today and headed for the biggest weekly gain in almost three years on the Bursa Malaysia Derivatives. The contract for January delivery was at 2,617 ringgit at 4:42 p.m. in Kuala Lumpur.

Supply Drop

The Palm Oil Board, which includes oleochemical and biodiesel companies, may cut its production estimate this year after November data are available, said Bangun. The group cut its estimate to 26.7 million tons to 27 million tons on Sept. 30 from 28 million tons. Output was 25.7 million tons in 2012.

Several major plantations reported that production unexpectedly declined 7 percent to 10 percent in the first 10 months, said Bangun. Some regions had too much rain during the dry season disrupting pollination and some trees suffered from a five-year low in their production cycle, he said.

Astra Agro, the country’s largest listed plantation company by market value, had a 7.1 percent decline in fresh fruit bunch output in the first nine months to 3.67 million tons, the company said Oct. 28. London Sumatra reported a 17 percent drop in production to 1.2 million tons, and output fell 29 percent to 804,341 tons at Sampoerna Agro.

While production declined for some companies, exports increased. Shipments climbed 19 percent to 15.3 million tons in the first nine months, according to Gapki data compiled by Bloomberg. Consumption also rose because of policies that required greater use of biodiesel, according to Bangun.

That may cut inventories to 2.2 million tons by the end of 2013 from 2.5 million tons a year earlier, said Bangun.

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