Monsoon Surge in Malaysia Bringing Fresh Flood Risk for Palm

A monsoon surge that brought the worst floods in decades to Malaysia, hurting palm oil output in the second-largest grower, is forecast to move south this week, risking further inundations in Johor and Sarawak. Prices fell.

Heavy rains will probably start on Jan. 7 or Jan. 8 in the two states and could last two or three days, potentially causing floods, according to Ambun Dindang, an officer at the Malaysian Meteorological Department. Johor, at the southern end of Peninsula Malaysia, together with Sarawak in Borneo Island account for about one third of the country’s total production.

Palm oil rallied last week to the highest in almost two months after the severe flooding in the north hurt harvesting, and Ambun’s forecast raises the possibility of a second wave of disruptions further south. The wetter-than-usual weather that stretched from southern Thailand, through Malaysia and into Indonesia also triggered rubber-supply concerns, sending futures into a bull market. The floods will probably cut palm oil output and push prices higher, according to BNP Paribas SA.

“At the moment, the cloudy areas are more towards the sea, just at the northeast of Johor and northwest of Sarawak,” Ambun said in a telephone interview from Petaling Jaya, near Kuala Lumpur today. “These patches of clouds are still hovering over this place. So once it moves in, you can see some increase in rainfall amount, especially in Johor and Sarawak.”

Prices Rally

Palm oil for March delivery rose as much as 0.6 percent to 2,297 ringgit ($650) a metric ton on the Bursa Malaysia Derivatives today before ending 0.9 percent lower at 2,262 ringgit. Last month, most-active futures advanced 4.3 percent as the floods spread in Kelantan, Terengganu and Pahang, three states that lie north of Johor along the east coast of Peninsula Malaysia. The price rallied to 2,308 ringgit on Dec. 29, the highest since Nov. 4.

“This could drive prices up,” Michael Greenall, a Kuala Lumpur-based analyst at BNP Paribas, said by phone today, referring to the risk of floods in Johor and Sarawak. “It depends on how severe the long-term impact is, because we don’t know whether there’s any damage to the trees as well if there’s flooding, and how fast these trees will recover.”

Models still show a surge of showers this week, keeping a risk of damage over palm oil areas in Malaysia, Commodity Weather Group LLC, a Bethesda, Maryland-based forecaster, said in a report on Jan. 2.

Floods Possible

“At the beginning of the monsoon season in November and December, normally the northeastern part of Peninsula Malaysia will get this impact of the monsoon surge, and then it propagates to the south,” said Ambun. “Floods are possible,” he said, referring to areas in Johor and Sarawak.

Malaysian output may have dropped 22 percent to 1.36 million tons last month, Ivy Ng, an analyst at CIMB Investment Bank Bhd., wrote in a report dated yesterday, citing a survey by the bank’s futures team. Inventories probably declined to 2 million tons, providing short-term support to prices, Ng said.

Prime Minister Najib Razak is down with E. coli after visiting the flood-hit areas, his media office said in a Twitter posting. Flood victims are concerned about diseases caused by contaminated water, rubbish and carcasses, the Star newspaper reported on its website today.

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