Malaysia's Palm Oil Production Decline

By Ashley Tang and Rajendra Jadhav

KUALA LUMPUR/MUMBAI (Reuters) – Malaysia's palm oil production is anticipated to decline for the fourth consecutive month in December due to heavy rainfall affecting harvesting in the world's second-largest producer of this tropical oil, as reported by the industry regulator.

Lower production in Malaysia is expected to reduce inventories and further elevate benchmark futures, which are nearing their highest levels in roughly 2.5 years.

Ahmad Parveez Ghulam Kadir, director-general at the Malaysian Palm Oil Board (MPOB), stated, "We estimate a potential reduction of around 5% to 8% in crude palm oil (CPO) production under normal circumstances."

He added, "However, if severe flooding persists, the reduction could reach as high as 10% to 20%."

Peninsular Malaysia, especially its northeastern coast, along with southern Thailand has been severely impacted by torrential rains that have caused floods, resulting in numerous fatalities and damage to homes, transport links, and thousands of acres of rice crops.

Malaysian Prime Minister Anwar Ibrahim commented that the rains exceeded expectations, with certain areas along the east coast receiving more rainfall than what is typical for six months between November 26 and 30.

In November, Malaysia's CPO production decreased by 9.8% month-on-month, resulting in 1.62 million metric tons, marking the lowest output for the month since 2020, according to MPOB.

The Malaysian Meteorological Department (MET) indicated that some states might experience continuous rainfall from December 16 to 19.

Kadir mentioned that the MPOB is closely monitoring the situation, as the MET has forewarned of a second wave of floods due to ongoing heavy rainfall.

The excessive rains could further damage plantation infrastructure, such as roads and bridges, complicating the harvesting and transport of fresh fruit bunches from estates to mills.

In December 2023, Malaysia harvested 1.55 million tons of CPO, but industry insiders warn that production this December may be significantly lower compared to last year.

Typically, palm oil is traded at a discount to soybean and sunflower oils, yet it currently holds a premium over these competing oils due to constrained supplies.