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Prices seen higher on El Nino-induced drought

KUALA LUMPUR -- Malaysia's palm oil production fell for the second month in a row, giving hope for an uptick in the price of the commodity, which has been under pressure due to slowing demand.

     Production of crude palm oil in December dropped 15.4% month-on-month to 1.4 million tons due to disruptions in harvesting during the year-end monsoon season, data released Monday by the Malaysian Palm Oil Board revealed. The fall was worse in November at18.8%.

     Inventory of palm oil products also declined 9.5% to 2.6 tons, pushing up prices of the vegetable oil used widely in food and as biofuel. The benchmark Crude Palm Oil Futures Contract on Bursa Malaysia Derivatives in Kuala Lumpur for March delivery rose 6% to 2,441 ringgit ($556) per ton in mid-day trading.

     December's shipment of palm oil declined 1% to 1.5 million tons as importers from China turned to Indonesia for more attractive prices, according to CIMB Research. Malaysia and Indonesia account for 85% of the world's palm oil production.

     Malaysia exported 17.4 million tons of the commodity in 2015, marginally higher by nearly 1% compared to the previous year. India has emerged as the biggest buyer again, importing 3.7 million tons or 21% of total shipment. China remained the second largest buyer at 2.4 million tons.

     Analysts are bullish about crude palm oil prices, given the region-wide drought brought on by El Nino. Malaysia's meteorological department has predicted less-than-usual rainfall in the first quarter of the year, which could have an impact on the yields of palm fruit. Ivy Ng of CIMB Research said the prediction will be supportive of her estimate of average crude palm oil price of 2,450 ringgit per ton in 2016, higher than last year's 2,230 ringgit.

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