Southeast Asian wildfires threaten palm oil production

Large-scale wildfires on the Indonesian islands of Borneo and Sumatra are posing risks to palm oil production in Indonesia and Malaysia, the world’s two largest producers. Prolonged drought and high temperatures have already caused more than 200 thsd ha to burn in Indonesia, while heavy haze has spread to neighboring countries.

The Indonesian Palm Oil Association has reported disruptions to fruit harvesting at plantations, as some workers have been deployed to fight the fires. Dense haze could also slow fruit ripening and negatively affect future yields. Conditions are particularly severe on Borneo, including Malaysia’s Sarawak state.

Production concerns have already affected the market. On Tuesday, crude palm oil futures in Kuala Lumpur jumped 2.4% to MYR 5,013/t, reaching their highest level in nearly two years. Market participants are concerned that prolonged fires could reduce palm oil supplies from the world’s key producing region.

Prices are receiving additional support from stronger demand for palm oil as a biofuel feedstock amid high crude oil prices. A combination of potentially lower production and stronger demand from the biofuel sector could further tighten the global vegetable oil market.

Indonesia has deployed thousands of firefighters and aircraft to tackle the fires in Kalimantan, although high temperatures and poor visibility are hampering operations. If the fires and haze persist, the impact on oil palm plantations could continue beyond the active fire season, posing risks to yields and global palm oil supplies.

Tags: Asia, Indonesia, Malaysia, palm oil, oil production, wildfires