Oil Used in Snacks to Soap Seen Curbed as Rains Won’t Save Trees

  • Oil palm stress from El Nino to last for 15 months: Sime Darby
  • Wet weather from La Nina seen aiding crops in 6-12 months

Trees from which palm oil is derived are so starved of water that even an abundance of rainfall won’t be able to offer much relief immediately, according to one of the world’s biggest producers of the commodity used in food and cosmetics.

Production of palm oil in Asia may be slow to recover even as the wetter La Nina weather phenomenon replaces the drier El Nino, said Franki Anthony Dass, managing director of plantations at Sime Darby Bhd., the world’s biggest grower of the trees by acreage. The company’s output in Malaysia may be cut by 6 percent, while its Indonesian supply may decline 8 percent to 10 percent, he said.

With the end of El Nino that brought drought to parts of Southeast Asia and India, weather watchers are now waiting for a possible La Nina. U.S. forecasters say there’s a 75 percent chance it will develop during the fall and winter and Australia’s weather agency says there’s a 50 percent chance of the event in the second half. While La Nina may bring rains, palm oil crops are still recovering from drought, according to Dass.

“In the recent ‘super’ El Nino, we have experienced prolonged droughts in Sabah, south Kalimantan and Papua New Guinea, with almost seven months of low rainfall,” Dass said in an e-mailed response to Bloomberg News questions. “Although the El Nino has peaked, we expect the ongoing tree stress to last for 15 months.”

The recovery in production has been weak and below expectations, he said. Crude palm oil output Malaysia-wide rose 4.9 percent to 1.36 million tons in May from April, according to the Malaysian Palm Oil Board. That’s still 25 percent lower than last year and the least for the month since 2007. In Indonesia, there’s been an increase of about 7 percent in May, that nation’s association data show. The two countries together account for about 86 percent of global palm oil supplies.

La Nina

“It is important to note that as La Nina enhances rainfall, this in turn could boost fresh fruit bunch production,” said Dass. “Oil palms are water loving trees and the wet weather will more likely benefit the palms six to 12 months later.”

While La Nina’s adverse impact wouldn’t be as severe as drought, wet weather can still affect crop recovery and earlier events damaged infrastructure used to harvest and transport the tropical oil, Dass said. Sime Darby experienced its worst La Nina in 2007, when prolonged flooding and strong water currents damaged roads and bridges and cut off accessibility to some estates, preventing crops from being harvested in time.

To mitigate extreme weather conditions, the company uses catchment ponds and is constructing reservoirs and irrigation systems. “In effect, we are leveraging on the La Nina to help us prepare for any future dry periods,” Dass said.

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