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Lower palm oil output growth seen [12-08-2011]  
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Southeast Asian palm oil output will not be as high as expected this year as the effects of the El Nino weather condition in 2010 may weaken yields, a top official from Malaysia's IJM Plantations said on Wednesday.

Chief executive Joseph Tek Choon Yee said the impact of the El Nino-driven drier weather can be noticed now with the development of lower oil-yielding male flowers and can extend until next year.

Palm oil production in top exporters Indonesia and Malaysia have recovered strongly after two years of erratic wea-ther hurting yields, leading many in the industry to expect further output growth and swelling stocks.

"For the second half of this year, this anticipated high crop may not happen," Tek said in an phone interview from IJM Plantations' headquarters in Sabah.

"I don't think 7 to 8 per cent growth in production in Malaysia and Indonesia is really that significant and I think demand can take it."

Tek, who oversees 30,000ha of oil palm estates in Malaysia, pegged the Southeast Asian country's production at 18.2 million to 18.4 million tonnes this year from 17.0 million tonnes in 2010.

In Indonesia - where IJM has started planting on its 40,000ha landbank - overall production could rise to 23.9 million to 24.0 million tonnes this year from 22.3 million tonnes, Tek said.

Expectations of higher production this year have weighed on benchmark Malaysian palm oil futures, which have lost more than 22 per cent this year with analysts expecting palm oil to fall below RM2,800.

Palm oil dropped below RM3,000 this week as the US credit rating cuts raised fears of global growth slowing and commodity demand stalling.

"The discount we have against soya oil is very high at about US$70 (RM210.7) a tonne. This is still very wide and will give support. The supply and demand sce-nario is very balanced," Tek said.

"I am one person who believes ... users of palm oil per se should learn to embrace a price yardstick average of RM3,000 a tonne for crude palm oil on an annual basis."

With palm oil prices still well above 2008 financial crisis levels, Tek said IJM Plantations' profit and revenue in the current financial year that ends in March 2012 will be better than the previous year.

"Our first-quarter results will be announced at the end of this month and it is setting in motion a good year," he said.

He declined to give details, but in the last year financial year, revenue rose to a record of RM506.3 million with net profit at RM147.2 million.

IJM Plantations, valued at RM2 billion, has been focusing most of its efforts on developing its 40,000ha landbank in Indonesia, roughly half the size of Singapore.

By the end of the current financial year, it will plant another 7,000ha in Indonesia, bringing total planted area to around 20,000ha, Tek said.

Like many other Malaysian palm oil firms, it is also looking to buy more land but IJM Plantations wants to grow at a more sustainable pace as labour shortages in Indonesia and Malaysia worsen at time of rapid industry expansion.

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