Palm oil futures climbed as much as 0.9% to RM4,975 a tonne as traders assessed the risk of supply disruptions from forest fires in Indonesia, the world’s biggest palm oil producer.
The rise came as thick haze from the fires blanketed parts of Southeast Asia, with harvesting activities disrupted in some areas as farm workers were deployed to help fight the fires.
Smoke and reduced sunlight could also affect the growth of palm fruit, raising concerns over production in the coming months.
“The latest price move reflects the haze situation in Indonesia, which is getting worse,” said David Ng, senior trader at Iceberg X Sdn.
The market is “concerned about the dry and hazy situation affecting output,” he added, while noting that palm oil was also supported by higher crude and vegetable oil prices.
Higher crude prices can make biofuels more competitive, potentially supporting demand for palm oil, which is widely used as a feedstock for biodiesel.
The fires and haze have been exacerbated by this year’s severe El Niño weather pattern, which has created drier conditions across the region.
The ASEAN Specialised Meteorological Centre said prevailing southeasterly and southwesterly winds were also contributing to the spread of cross-border haze, while an expected increase in showers around October could help ease the situation ahead of the wet season.
More than 202,000 hectares have been burned across Indonesia’s Borneo and Sumatra islands, with pollution levels rising in Indonesia as well as neighbouring Singapore, Malaysia and the Philippines.
Bloomberg
