Palm oil prices to stay low until 2002 at least

JAKARTA (JP): An oversupply will likely continue to hit the palm oil market despite an attempt by the two world's major producers Indonesia and Malaysia to cut the supply, according to the Indonesian Palm Oil Producers Association.

The association's chairman Derom Bangun said here on Thursday that the oversupply would cause the palm oil prices to stay low at about US$260 per ton at least until next year.

Derom Bangun, Gapki's chairman told a press briefing that the oversupply could not be avoided because production from the two major producing countries would continue to increase despite their attempts to cut the supply to the market.

He said that Indonesia's palm oil production would increase by about 10 percent to 7.2 million tons this year from 6.5 million tons last year, while that of Malaysia would rise to 11.2 million tons from 10.8 million tons last year.

The oversupply could be higher due to the impact of India's move to restrict imports of palm oil products in the country.

Derom said the volume of palm oil exports from Indonesia and Malaysia to India, one of the world's largest consumers of palm oil products, would decline sharply as a result of the restriction.

"This will increase the oversupply in the world's palm oil market," he added.

The palm oil price, which reached $700 per ton in late 1998, started to decline in early 1999 due to the oversupply.

Derom said Indonesia and Malaysia had agreed to work together to prop up the palm oil prices. But the market did not really respond positively to the move due to the lack of concrete actions.

Malaysia and Indonesia said they would ask India to review the import tariff in a bid to prop up the prices. At the same time, the two countries would also persuade China to add to its palm oil export quotas, he said, adding the move was important as India and China were the two largest palm oil importing countries.

He added that the alliance had also approached new palm oil markets especially in countries of the former Soviet Union including Ukraine, and Georgia.

According to him, about 4.2 million tons of Indonesia's 7.2 million tons of palm oil production this year, would be exported.

Of this year's total production, North Sumatra would contribute about 2.3 million tons, Riau 1.5 million tons, and Kalimantan 1.5 million tons. The remaining 1.9 million tons would come from other provinces in the country, Derom added.

In Kuala Lumpur, the Malaysian palm oil futures ended mostly higher on Thursday on overnight rises on the Chicago Board of Trade, but trading lacked direction as players waited for fresh leads, trader said.

"The market has no direction. It was moving in a very tight range and I saw strong resistance at 850. The market could hold only because of Chicago," said one trader in Kuala Lumpur.

The benchmark June futures position ended up four ringgit at 844 ringgit ($222.10) a tonne after trading as high as 846 ringgit. Volume was 1,684 lots.

Physical April CPO for the southern region was offered at 830 ringgit a tonne against bids of 825, and trade was reported at 825. Physical April (central) saw offers at 830 ringgit against bids of 820 and business at 820.

May CPO (south) was offered at 840 ringgit against bids at 835 and trade at 835. May (central) saw offer at 840 ringgit against bids of 830. There were no deals. (05)