KL to buy palm oil from producers

KL to buy palm oil from producers

KUALA LUMPUR (Reuters): The world's top palmoil producer Malaysia has asked producers to set aside five percent of output for sale to the government at a fixed price of 725 ringgit (US$190.78) a metric ton to cut surplus stocks and boost prices.

Palm oil bought would be used as industrial fuel and help support prices which now hover at a 10-year low, Primary Industries Minister Lim Keng Yaik told reporters on Tuesday.

"All producers of palm oil...should offer five percent of their production. Immediately, we will buy the oil," he said.

Rumors circulated in the local palm oil futures market last week that the government would ask local palm oil producers to allocate five percent of their annual output to run power plants.

Lim said that the government planned to use the purchasing scheme to take out at least 500,000 tons of crude palm oil from the market this year.

Malaysia is struggling to ease its domestic stocks, which reached a record high of 1.52 million tons last November, due to poor exports and fierce competition from the world's second largest producer and arch rival Indonesia.

Respected private forecaster Ivan Wong in his latest report put end-February stocks at 1.43 million tons, down from 1.52 million tons at end-January.

He expected end-March stocks to reach 1.33-1.34 million tons.

Malaysia produced 10.5 million tons of palm oil in 2000.

Lim said the government had initially intended to turn crude palm oil into bio-diesel, to reduce stocks but that would have taken too long a time to show results.

"It takes too long to set up the refiner. It takes at least two years. Meanwhile, we are not going to suffer for two years with this kind of low prices," said Lim, adding that using palm oil as industrial fuel was now seen as the most feasible option. Lim said the palm oil sector was now eying big power companies, such as the country's largest power firm Tenaga Nasional Bhd, to buy crude palm oil for fuel.

As part of its efforts to reduce stocks and improve prices, the government announced last month that Malaysia would chop down old palm oil trees on around 200,000 hectares (495,000 acres) which yielded about 600,000 tons of crude palm oil this year.

Technical covering pushed up Malaysian palm oil futures at the close on Monday ahead of the Muslim Eid al-Adha celebration and an edible oils conference this week.

At the close, the benchmark third-month May futures contract was up 24 ringgit at 789 ringgit ($207.63) a ton, the day's high.