Palm oil price fears rise with flood waters

By staff reporter

- Last updated on GMT

Related tags: Palm oil, Malaysia

Severe flooding in Malaysia looks likely to affect palm oil
supplies for November and December, sparking a shortage that would
drive up prices.

Malaysia's monsoon season runs from November to February, and flooding following heavy rains was first reported last week. The latest reports cite 26 deaths as a result of the flooding, and more than 20,000 people have been evacuated from their homes in the worst hit areas. Palm oil​ is used in a wide range of personal care​ products including soaps, shampoos and deodorants as well as foods and bio-fuels. It has become an increasingly popular ingredient, present in 497 products launched in 2007 compared to 246 last year, according to market research firm Mintel. Sabri Ahmad, chairman of Malaysian Palm Oil Board, told Reuters​ news agency that he expects December production to be down. "At this stage it is difficult to say how much but the estimate for 2007 production is 15.5 to 15.7 million tonnes."​ Other industry insiders have said output could be reduced by 18 per cent from November - and growers have predicted reduced output of as much as 30 per cent. The flooding is making it difficult for growers to harvest their fruits and deliver them to the mills. There are also fears that, once the flood waters recede, the fruits that come to market will be over-ripe or rotten. At close yesterday, crude palm oil contract futures for January 2008 were at RM2916 a tonne - up from RM2857 a week ago, and RM5897 on the open interest market. Amongst the worst hit regions are said to be Pahang, Jahor in the south, Kelantan and Terengganu in the east, and parts of Sarawak. In the north-east, the Golok river on the border with Thailand burst its banks yesterday. A high tide phenomenon has been predicted to hit coastal areas on Friday. Police and military personnel are on standby. Malaysia also suffered intense monsoon flooding last year, with losses reported to amount to 1.2bn ringgit (US$343m; €236m). The monsoon season runs from November to February. According to the Malaysian Palm Oil Council, In Malaysia exported 14.4m tonnes of palm oil in 2006, just over 50 per cent of the global trade in oils and fats.

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