Malaysia's record CPO output pressures prices

Malaysia's record CPO output pressures prices

KUALA LUMPUR (Dow Jones): Malaysia's palm oil output is
expected to hit yet another record high this year, prompting
industry participants and the government to step up efforts to
seek creative ways to boost usage, and prevent a further slide in
prices.

Palm oil prices are set to be lower on average than in 2000,
as a result of rising output and high global inventories, M.R.
Chandran, chief executive of the Malaysian Palm Oil Association
told Dow Jones Newswires in a recent interview.

"We have good crops coming in from all the regions. We may
have to revise the production forecast upwards this year,"
Chandran said. The MPOB is a growers' association.

Malaysian output, which is seeing a sharp increase in recent
months, could easily reach between 11.5 million and 11.7 million
metric tons, up from 10.84 million tons in 2000, Chandran said.
Malaysia, the world's largest producer of palm oil, produced
10.55 million tons in 1999.

Much of the increase in output this year will come from East
Malaysia, particularly Sabah. The area under oil palm cultivation
in Sabah and Sarawak has gone up substantially in recent years,
leading to a steady increase in production.

Reports from Sabah indicate a 40 percent to 50 percent on-
month increase in production in May alone, Chandran said.

A senior official at the MPOB, however, said the government
will continue to maintain its forecast at 11.2 million tons for
this year. Private traders, meanwhile, have said production will
hit 12 million tons.

The association is expecting crude palm oil prices to average
between 760 ringgit a ton and 780 ringgit a ton this year, down
from an average of 993 ringgit on in 2000.

CPO for spot delivery was offered Thursday at 790 ringgit a
ton, free-on-board Malaysia.

Chandran said despite the recent price gains in the cash and
futures market, the price outlook is still grim because of a glut
in the global vegetable oils market.

In Malaysia alone, with last year's carry-over stock of 1.42
million tons, the palm oil industry is faced with the task of
finding buyers for over 13 million tons of palm oil this year.

Indonesia's production is also expected to be higher this
year, touching at least 7 million tons, up from 6.5 million tons
last year, he added.

Despite early setbacks, the government and the industry will
continue with their efforts to find alternative uses for palm
oil.

After unsuccessfully trying to use CPO as fuel in state
utility Tenaga Nasional Bhd.'s power plants, the Primary
Industries Ministry is now trying to encourage smaller generation
units in Sabah and Sarawak to use a mix of refined palm olein and
diesel as fuel.

The government has scheduled a meeting of experts and industry
associations Friday, where the revised plan will be discussed.

Chandran said there are about 70 such generating stations in
East Malaysia, catering to the needs of smaller towns. A large
majority of these are run by Tenaga.

"Even if a 50:50 blend (of olein and diesel) is used, it could
easily take 20,000 to 30,000 tons of palm olein (out of the
market) a month," he said.

At Friday's meeting, the government is also expected to
discuss the possibility of subsidizing the usage of the mix to
make the plan financially attractive.

Similar efforts at finding alternative uses for vegetable oils
elsewhere in the world will also contribute to better prices in
the long run, he said.

"The European Union is coming out with a manifesto on
biodiesel" soon he said, adding that if European countries
provide incentives to biodiesel soon, this could help reduce
global soybean oil stocks.