KUALA LUMPUR (Reuters) – FGV Holdings, the world’s largest crude palm oil producer, forecast a significant drop in 2020 output as coronavirus-driven restrictions disrupted work at its plantations and mills.

Malaysia last month imposed restrictions on movement until mid-May that include shutting most businesses, although essential services including the palm industry were allowed to operate with reduced staffing in the world’s second-largest producer of the vegetable oil.

The company said on Tuesday disruptions to plantations and mill operations would affect crude palm oil (CPO) supplies, while restrictions on logistic services would impact movement of the commodity and inventory levels.

“While the full impact of the outbreak has yet to be determined, FGV will be affected mainly because of the effects of the Restriction of Movement Order imposed by the Malaysian authorities which has curtailed our workforce strength,” Chief Executive Officer Haris Fadzilah Hassan said.

“For our downstream business, we are expecting a reduction in processing volume especially for the export and bulk product segments,” he added.

FGV said demand was being supported by restocking in China as the world’s second-largest economy recovers from a more than two-month-long lockdown to contain the pandemic, but Malaysia faces competition from Indonesia due to its lower price for the commodity.

The company estimated CPO prices would trade between 2,200 ringgit and 2,400 ringgit ($505.17 and $551.09) per tonne this year, compared with palm’s closing price of 3,052 ringgit ($700.80) per tonne in 2019.

Malaysia’s benchmark CPO contract has plunged about 35% since the turn of the year to 2,037 ringgit per tonne by Wednesday.

A jump in biodiesel demand due to higher biodiesel mandates in Malaysia and top producer Indonesia is likely to absorb any significant rise in production, FGV said.

It, however, added that lower fertiliser usage and weather challenges last year were likely to cut Malaysia’s 2020 production to around 19.3 million tonnes to 19.6 million tonnes, from 19.9 million tonnes in 2019.

“While CPO price remains stable for the first quarter of 2020 in spite of the COVID-19 challenges, the duration for recovery from the pandemic across the world is crucial for the CPO outlook,” it said.

($1 = 4.3550 ringgit)

(Reporting by Mei Mei Chu; Editing by Aditya Soni)