Palm oil stocks to flourish as Asia battles severe drought

Edible oil prices will spike in 2016.

After enduring several quarters of lacklustre growth, listed palm oil producers are headed for a sharp rebound on back of the anticipated increase in edible oil prices.

According to a report by RHB, the severity of drought brought about by the current El Nino phenomenon will have an "unprecedented" impact on palm oil prices.

"We believe the El Nino’s impact on edible oil supply will be the biggest ever given its strength and high global reliance on palm oil," RHB said.

The report highlighted that in the last mild El Nino in 2009-2010, palm oil price went ballistic as production stagnated.

"Given that the current episode is a strong one and could match the 1997-1998 El Nino, the impact on production will be more severe with Indonesia potentially experiencing a production decline next year," RHB said.

RHB has raised its average CPO price for 2016 to MYR2,700/tonne, while its 2017 forecasts have been lifted to MYR2,750/tonne from MYR2,600/tonne.

“We expect palm oil prices to strengthen in all currencies once the CPO price uptrend is established,” RHB noted.

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