KUALA LUMPUR (June 15): El Niño is officially here, and there is potential upside for palm oil prices from current levels if the weather phenomenon turns out strong, said RHB Research.
While the strength of the current event has yet to be confirmed, a strong condition could drag on palm oil output for as long as two years, the research house warned in a note as it upgraded its recommendation for regional plantation stocks to ‘overweight’ from ‘neutral’.
“We believe there is upside risk” that crude palm oil price could surpass the average of RM4,400 per tonne for 2026 and RM4,300 per tonne for 2027, the house said.
The US National Oceanic Atmospheric Administration has declared that El Niño has developed, which could spell drought and heatwaves in Malaysia and Indonesia. The advisory issued predicted that the latest occurrence of El Niño could shape up to be moderate or strong.
That could shrivel palm trees and lower production over a year in both countries which account for nearly 90% of the global supply of the edible oil used in everything from soap to ice cream.
A strong El Niño cut into yield by 14% for 2016-2017 and 17% for 1998-1999 while the average crude palm oil prices rose by as much as 21% during the onset and by an additional average of 26% one year after El Niño, according to RHB Research.
The benchmark palm oil futures are now trading at RM4,456 on Bursa Malaysia Derivatives after climbing over 10% since the year began. A rally in petroleum prices when the geopolitical conflict in the Middle East broke out has also boosted prices of palm oil this year.