Asia Palm Oil Sector - What do warships, spears and chicks have in common?


● What do warships, spears and chicks have in common? The answer is the haze, caused by El Nino-induced droughts.

Just how bad is the haze?
(1) Warships have been deployed to Kalimantan and Sumatra to evacuate residents;

(2) IJMP says palm spears are unopened, confirming stress;

(3) Chickens are dying;

(4) IOI says FFB output may be 10% below norm.

Australia’s Bureau of Meteorology reiterated that a strong El Nino is likely to persist until year end, before a marked decline during 1Q 2016. This is positive for palm oil prices.

Our top picks are LSIP, FR, BAL, AALI, GENP, and DSN.

The answer is the haze
Just how bad is the haze?

Central Kalimantan is now covered with thick, acrid yellow smog. Thousands are now fleeing the area to escape the toxic air. The fires have killed 10 people so far, some of whom died from pollution. Three warships carrying medical teams, tents, cooking stoves and protective masks have been sent to Kalimantan and Sumatra. “Our warships are ready to evacuate residents whether to these temporary shelters or even to take them on board,” said Indonesian Military spokesman Tatang Sulaiman. (Star, 28 Oct 2015)

Joseph Tek, MD of IJM Plant said prolonged bone-dry episodes since early this year have led to moisture stress. “Significant unopened number of spear (palm leaves) of up to half a dozen, were observed confirming the trauma experienced by the trees.” “The immediate impact will see a delay in ripening of bunches and dangers of fire hazards from the dry spell in operations.” “On the milling side, some palm oil mills may end up with the concern of long-term availability of water for processing.” (Star, 28 Sep 2015)

Chicks are dying in millions (4mn have died), vegetable production is down 30% sending prices up by more than two-fold and egg production is down 5% due to the haze. Chicks are supposedly more sensitive to haze than humans, and have to be given extra vitamins during haze! (Straits Times, 2 Oct 2015)

"I must admit there was a mistake in the BMKG (Indonesia’s state weather agency) forecast that didn't predict El Nino this year would be worse than 1997. Our forecast was wrong," said security Chief Luhut Panjaitan, who has been tasked by President Joko Widodo to handle the government's response to the forest fires which are causing the haze. (Reuters, 28 Oct 2015)

Experts say forest fires in Indo are spreading to new areas & unlikely to be put out until next year, Reuters reported. “Maybe it will last until Dec/Jan,” said Purnomo a scientist at the Centre for Int Forestry Research. (Reuters, 19 Oct 2015)

IOI Corp sees the effects of the dry El Nino conditions and haze cutting its production of FFB by 10% from its normal level, but giving the much-needed support to CPO prices. CEO Lee added the El-Nino effect and haze has further weighed down the production as the fewer hours of sunlight reduce photosynthesis. (Edge, 27 Oct 2015)

Australia’s Bureau of Meteorology reiterated today that a strong El Nino persists. Sea surface temperatures continue to warm but at a markedly slower pace. Models indicate strong El Nino is likely to persist until year end, before a marked decline during 1Q 2016. (BoM, 27 Oct 2015) (Read Report)

Source : Credit Suisse Asia Pacific Equity Research

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