Written by Ashley Tang and Rajendra Jadhav
KUALA LUMPUR/MUMBAI (Reuters) – Malaysian palm oil production is set to decline for the fourth straight month in December as heavy rains hit the harvest in the world's second-largest producer of the tropical oil, the industry regulator told Reuters on Friday.
Lower production in Malaysia would limit inventories in the country and boost benchmark futures, which are already near their highest levels in about two-and-a-half years.
“We estimate a potential decline of about 5% to 8% in crude palm oil production under normal conditions,” said Ahmad Parvez Gulam Qadir, director-general of the Malaysian Palm Oil Board (MPOB).
“However, if severe flooding continues, the decline could reach between 10% and 20%,” he added.
Peninsular Malaysia, especially its northeastern coast, and southern Thailand, were hit by heavy rains that caused floods that killed dozens of people and damaged homes, transportation lines, and thousands of acres of rice crops.
Malaysian Prime Minister Anwar Ibrahim said the rains far exceeded expectations, with some areas of the east coast seeing more than six months of rain from November 26 to 30.
In November, Malaysia's CPO production fell 9.8% from last month to 1.62 million metric tons, the lowest level for the month since 2020, the council said earlier this week.
The Malaysian Meteorological Department said on Friday that some states may witness continuous rain during the period from December 16 to 19.
Qadir said MPOB is closely monitoring the situation as the Meteorological Department has predicted a second wave of floods due to heavy rains.
He added that heavy rains could further damage farm infrastructure, such as roads and bridges, making it difficult to harvest and transport fresh fruit bunches from farms to mills.
In December 2023, Malaysia harvested 1.55 million tonnes of CPO, but production in December could be much lower than last year, said one Malaysian palm oil producer, who did not want to be named.
Palm oil typically trades at a discount to soybean oil and sunflower oil, but is currently higher than these competing oils due to limited supplies.
