(Corrects typo in paragraph 1)
By Emily Chow
KUALA LUMPUR, March 9 (Reuters) - Global palm oil production could fall by over 2 million tonnes this year because of the drought caused by the El Nino weather event and further declines may occur due to heavy rains from the La Nina event later this year, a leading industry analyst said.
Concerns of falling palm oil output has lent support to benchmark prices that have risen 1.8 percent this week after hitting a one-month low on Thursday. Palm traded around 2,551 ringgit ($617) per tonne on Wednesday afternoon.
“The El Nino will pull world 2016 crude palm oil output down by over two million tonnes. A Q three to Q four La Nina, with heavy rains, would reduce 2016 output by a further 0.4 million tonnes,” said James Fry, chairman of commodities consultancy LMC International, at an industry conference in Kuala Lumpur on Wednesday.
The El Nino weather pattern brings scorching heat across Southeast Asia, lowering palm fruit yields in top growers Indonesia and Malaysia, which produce about 85 percent of global palm oil. The subsequent La Nina phenomenon typically causes more rain in both countries.
Fry had earlier forecast Southeast Asian production to fall by 4 million tonnes in 2016 on static output in Indonesia, while Malaysia will record a decline as a result of the El Nino, which Fry said is the strongest since 1997.
He also forecast crude palm oil (CPO) prices to climb to 2,750 ringgit per tonne by June on a Brent crude oil forecast of $35 a barrel, and hit 2,900 ringgit if oil reaches $40.
“Free-on-board (FOB) CPO will be $700 by June... As output picks up, the July to December average price will fall back to $625 FOB and the price will fall further as 2017 unfolds” if oil prices are at $35, said Fry.
FOB CPO prices would reach $735 a tonne on $40 a barrel oil while palm kernel oil will average $425-$450 above CPO in 2016, supported by weak output of oil palm and coconut oil, he said. ($1 = 4.1320 ringgit) (Reporting by Emily Chow; Editing by Christian Schmollinger)