KUALA LUMPUR, Oct. 25 (Xinhua) -- Palm oil prices may surge to 3,500 ringgit (827 U.S. dollars) per tonne if a strong La Nina weather phenomenon can bring more rainfall than usual by the year-end, a Malaysian research house said Wednesday.
The Australia Bureau of Meteorology has activated its La Nina Watch on Tuesday, with 50 percent chance of La Nina forming in late 2017.
"If La Nina is confirmed, we expect excessive rains in Malaysia and Indonesia which usually cause flood. The production in flood prone states may be affected," MIDF Research's Alan Lim said in a report.
He added, the news is slightly positive to palm oil price but the magnitude of impact will depend on the whether La Nina eventually materializes and its strength.
"Coupled with labor shortage problem which is still affecting the industry, we expect palm oil price to surge to 3,500 ringgit per tonne if a strong La Nina materialize," he said.
Meanwhile, the research house expects Malaysia's palm oil inventory in October to rise 4 percent month-on-month to 2.09 million tonnes.
The key assumptions are palm oil production will increase 3 percent month-on-month, while export will increase 6 percent.
"We believe that palm oil demand should be supported by good export growth to India as the pre-stocking activity should continue," he said.
He maintains his neutral view on plantation sector with near term expectation of palm price to trade at between 2,700 to 2,950 ringgit per tonne, but may review his palm oil price assumption soon.
As of Oct. 24, palm oil price stood at 2,772 ringgit per tonne, according to Malaysian Palm Oil Board. (1 U.S. dollar = 4.23 Malaysian ringgit)
