El Nino hits malaysia, full effect unknown

El Nino hits malaysia, full effect unknown

KUALA LUMPUR (Reuters): El Nino will squeeze commodity earnings in Malaysia next year but the impact of the weather pattern could be largely offset by another phenomenon -- a lackluster local currency.

Authorities said so far drought induced by El Nino currents had caused visible damage to only one Malaysian crop, cocoa.

El Nino's impact on this year's production of rubber and palm oil is unknown, although output of those two important cash crops is expected to fall next year.

But officials said it was still too early to estimate the financial implications because of the impact of the weaker ringgit.

"There will be some negative effect, but to what extent it's still early to say," said Primary Industries Minister Lim Keng Yaik, responsible for Malaysia's agricultural and mineral commodities.

A sharp decline in the value of the ringgit, at a record low against the U.S. dollar, has undercut the prices of many exported goods. The currency has lost nearly one third of its value against the dollar since early July.

But Malaysia's key commodities are traded in dollars and so their prices have risen in line with the stronger dollar.

A senior Agricultural Ministry official said it could be late next year before the effects of El Nino became clear and any losses could be quantified.

"It's going to take some time, towards end of '98. We won't know overnight and it's very difficult to predict," he said.

El Nino, named by Latin Americans for the "Christ Child", is a cyclical weather pattern that warms the north Pacific Ocean every few years. This year's El Nino is reported to be the strongest ever recorded.

For this year, all indications are that higher prices will more than offset lower production.

A prolonged drought brought by El Nino has virtually destroyed this year's cocoa crop, harvested between October and December, growers said.

A Malaysian Cocoa Board official told Reuters in early October that production for the whole year could fall by 40 to 50 percent from a forecast of 120,000 tons.

The Treasury Department's annual Economic Report, released earlier this month, said the volume of cocoa exports is expected to decline to 41,000 tons in 1997 from 42,432 in 1996.

But the value of exports could rise because of the weaker ringgit.

The Treasury report said receipts from cocoa bean exports are expected to rise 2.5 percent this year to 139.4 million ringgit ($41.4 million) from 136 million ringgit in 1996.

The rise in receipts would stem from a 6.3 percent increase in the unit value of cocoa to 3,400 ringgit a ton in 1997 from 3,200 last year.

Palm oil production will fall by an estimated 2.2 percent to 8.8 million tons next year from 9.0 million tons this year, the government estimates. In 1996, production was 8.4 million tons.

But palm oil, the highest earning crop, is forecast to bring in 10.7 billion ringgit this year, up 13.5 percent from 9.43 billion in 1996.

Only rubber is expected to see lower earnings. Output of rubber is forecast to fall to 920,000 tons in 1997 from 980,000 tons in 1996.

The value of rubber exports is estimated to fall 22.8 percent to 2.71 billion ringgit in 1997, from 3.51 billion in 1996 due to weak global demand, said the report.