– This is the script of CNBC's news report for China's CCTV on May 12, 2016.
Welcome to CNBC Business Daily, I'm Qian Chen.
Global production of palm oil this year may be even smaller than previously expected, and a rally in prices, which has stalled in recent weeks, is likely to resume, Oil World said.
Palm-oil production may drop 2 per cent this year to 61.25 million metric tons, the first decline in output in more than 20 years, the Hamburg-based researcher said in an e-mailed report. The estimate was 1.3 per cent lower than a forecast made last month.
The palm oil sector is one of Indonesia's key foreign exchange earners. Indonesia is the world's largest producer and exporter of palm oil, followed by Malaysia.
Riset Perkebunan Nusantara, a state-owned research firm, expects Indonesia's crude palm oil (CPO) production to drop 4.2 percent (y/y) to 32 million tons in 2016. The firm further adds that in 2015 Indonesia had a total of 11.3 million hectares of palm oil plantation.
El Nino is starting to fade, but the lagging effect of drought on palm trees probably will lead to lower output into next year.
"While El Nino conditions are virtually over, the impacts of the previous drought conditions have just started to show up in reduced yields and production," Oil World said. "These impacts will continue to be seen in the remainder of 2016 as well as in 2017."
Local plantations have taken a huge beating from the El Nino-induced drought, taking Malaysian palm oil stockpiles to a new low.
Bloomberg reported that Malaysian palm oil inventories fell 4.5% to 1.8 million tonnes in April from a month earlier, declining for a fifth month in the longest streak since June 2013, according to Malaysian Palm Oil Board data.
Philip Futures Sdn derivatives specialist David Ng felt recovery in oil production may be weak even though El Nino is ending soon.
He said the impact from El Nino may continue in the third or fourth quarters, depending on the weather in the next two weeks.
Still, experts said that substitutes, like soyoil, would keep a cap on palm oil prices.
So despite some recent strength in soyoil, helped by a broad commodities boom and Argentine soybean harvest disruptions, gains for palm oil are still being limited.
CNBC's Qian Chen, reporting from Singapore.