Malaysia Tallies Flood Damage as Palm Reserves Seen Dropping

Floods that hurt palm oil production across Malaysia will exacerbate a seasonal decline in output and help to cut inventories, according to CIMB Investment Bank Bhd., which said that it expected prices to remain firm.

The inundation affected about 184,000 hectares (455,000 acres), or about 3.5 percent of the country’s total planted area, with the states of Kelantan, Pahang and Terengganu worst-hit, analyst Ivy Ng wrote in a report dated today. Output may have dropped 20 percent to about 1.4 million metric tons last month from November, Ng said, citing an estimate from Plantation Industries and Commodities Minister Douglas Uggah Embas.

Palm oil rallied this week to the highest level in almost two months on concern the wetter-than-usual weather that stretched from southern Thailand, through Malaysia and into Indonesia may hurt supplies. The floods displaced hundreds of thousands, damaged infrastructure and prompted the government in Malaysia to prioritize flood-mitigation works. The country is the world’s largest palm oil producer after Indonesia.

“We need an immediate assessment of the damages,” Deputy Prime Minister Muhyiddin Yassin was cited as saying by the New Straits Times today. Infrastructure, such as roads and bridges, was affected, according to Muhyiddin, who was in Perak state overseeing flood-relief efforts.

Palm oil for March delivery ended 0.8 percent higher at 2,284 ringgit ($650) a ton on Bursa Malaysia Derivatives, extending gains to 1.5% this week. The price rallied to 2,308 ringgit on Dec. 29, the highest since Nov. 4. Last month it advanced 4.3 percent, paring an annual decline, as the floodwaters spread.

Lower Inventory

“The flood and the seasonally low-production season is likely to exacerbate the drop in crude palm oil output in the December 2014-January 2015 period, leading to lower palm oil inventory,” CIMB’s Ng wrote in the report dated Jan. 2 “This will be positive for near-term crude palm oil prices.”

The flooding affected about 23,730 hectares of estates run by Felda Global Ventures Bhd., or 6.3 percent of the company’s total planted oil palm estates, and the group estimated losses of about 21 million ringgit, Ng wrote. The company’s shares slumped as much as 5.5 percent in Kuala Lumpur today.

“Planters that are impacted by the flood will likely see weaker earnings in the fourth quarter of 2014 as the slight rise in crude palm oil price will not be sufficient to offset the drop in output,” Ng wrote. For Felda, the 21 million ringgit loss is equivalent to 6 percent of CIMB’s full-year net income forecast for the company, according to the report.

Stockpiles Outlook

Stockpiles stood at 2.28 million tons at the end of November after rising for a fifth month, according to data from the Malaysian Palm Oil Board. The reserves may have contracted to about 2 million tons in December, according to an estimate from MPOB Director-General Choo Yuen May on Dec. 31.

“The flood news has been discounted by the market,” Faiyaz Hudani, associate vice president at Kotak Commodity Services, said by phone from Mumbai, India today. “There may be some decline in production because of the disruption, but there are good carryover stocks in Indonesia and Malaysia.”

Isolated showers and storms are forecast for Pahang, Kelantan, Terengganu, Johor and Perak over the next seven days, the Malaysian Meteorological Department posted on its website on Jan. 1.

The number of evacuees declined this week as floodwaters receded. The figure in Pahang, Perak, Terengganu, Kelantan and Johor was at 84,575, down from 91,244 on Jan. 1, according to state news agency Bernama said, citing data from government agencies.

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