UTILITIES | Staff Reporter, Singapore

What could derail the rebound in crude palm oil supply next year?

It could veer off course with a strong La Niña event.

After Crude palm oil is expected to rebound next year, according to analysts, with the Indonesian Palm Oil Producers Association seeing national production rising 10% to 15%.

According to OCBC Investment Research, current weather conditions seem to be supportive for harvesting, but what could derail this expected rebound? A strong La Niña event could halt this expected uptick. However, weather forecasters do not expect this to occur.

"The National Oceanic and Atmospheric Administration (NOAA) sees a ~55% chance for La Nina to persist through the winter, followed by a transition to ENSO-neutral for 1Q17. Thus ample supplies may limit the increase in palm oil prices next year," OCBC said.

Here's more from OCBC:

On demand prospects for palm oil, much has been documented about biofuel mandates in Indonesia and Malaysia to raise domestic

Indonesia had increased palm oil content in biodiesel from 15% to 20% this year, and a government agency reportedly expects domestic demand for CPO’s use in biodiesel to grow ~70% by 2020, driven by higher subsidies for blending.

In addition, given recent developments for crude oil, biodiesel’s price premium over gas-oil’s may narrow and support biodiesel demand. Importantly, demand from key markets China, India and Europe will also have to stay robust for CPO prices to sustain. China has been selling their reserves of rapeseed oil, which have led to a decline in their palm oil imports, but the Malaysian Palm 

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