The Heat Is Online

Malaysia Drought Threatens Palm Oil Industry

Malaysia hit by fires and haze, sees rain ahead

Reuters News Service, Feb. 20, 2002

KUALA LUMPUR - Malaysia hopes heavy rain forecast for March will douse forest and peat fires that have sent haze across the capital Kuala Lumpur and ease a dry spell that threatens output from the country's key palm oil industry.

More than 15,000 hectares (37,000 acres) of land have been scorched by fires in the past few weeks, prompting the government to ban open burning.

The western state of Malacca is considering rationing water supplies because of dropping reservoirs and mosques there have been asked to hold special prayers for rain.

There were no reports the blazes, mainly in Peninsular Malaysia, had affected oil palm plantations in the world's largest producer but traders said a prolonged water shortage or haze could affect the production of palm oil fruits.

"This year is a little bit drier compared to last year. We are expecting some rains in the next few days, but they will be temporary," an official from the Malaysian Meteorological Service told Reuters by telephone. "However, rains will increase in mid-March, when we will be expecting afternoon thunderstorms," he added.

The eastern state of Sabah on Borneo, which with Peninsular Malaysia is the country's main oil palm growing area, is generally dry though some rain fell lately, said the official.

Smoke from the fires has been visible in the past few days in Kuala Lumpur, with an accompanying acrid smell, recalling memories of thick hazes which have veiled the city in recent years.

Officials at the Fire and Rescue Department said fires are still burning in Selangor state, but have largely died out in other peninsula states and Sabah.

Malaysia is also the world's third largest rubber producer after Thailand and Indonesia, and has a sizeable cocoa crop.

DRY WEATHER PUSHES UP PALM OIL PRICES

The fires came on top of forecasts that an El Nino weather pattern was developing in the Pacific, the effects of which can include drought and forest fires in Southeast Asia and eastern Australia, and heavy rain and floods in the Americas. Computer models in Australia, Britain and the United States have all pointed to 2002 being another El Nino year, though it is too early to say how serious its impact might be.

Palm oil traders said if dry weather persists beyond April, production could be badly hit. Malaysia produced 11.79 million tonnes of palm oil in 2001, up from 10.83 million tonnes in 2000.

Malaysia's crude palm oil futures rallied across the board this week, aided by strong covering in the physical sector on worries that dry weather could hit output.

But by midday yesterday, the new benchmark third-month May futures contract was seven ringgit lower at 1,155 ringgit ($303.95) a tonne on a technical correction and due to a Monday holiday in Chicago soyoil futures market.

In an effort to help curb the fires, Malaysia's Department of Environment has banned almost all forms of open burning.

"The department fears the current dry spell and the open burning could jeopardise the quality of the air," Director-General Rosnani Ibarahim was quoted as saying by the national Bernama news agency this week.

Open burning will still be allowed on agricultural land where there is a disease outbreak. It is also allowed to destroy infected animals, during fire-fighting training and for religious activities, such as cremation, said Bernama.