Rise predicted in Malaysian, RI palm oil production

Rise predicted in Malaysian, RI palm oil production

KUALA LUMPUR (Reuters): Malaysia and Indonesia expect to see
an increase in crude palm oil production this year, which could
trigger more competition between the world's largest producers,
analysts and traders said on Monday.

Malaysia's crude palm oil production is projected to reach
11.2-11.6 million tons this year, up from 10.842 million tons
recorded in 2000. Indonesia's output could reach 7.5-8.0 million
tons this year from 6.5 million tons last year.

Malaysia and Indonesia account for more than 80 percent of the
world's palm oil output. Analysts and traders attributed the
increases in output in both countries to maturing palm oil trees
from plantings just before the Asian economic crisis hit in 1997.

Plantation analysts said Malaysia needed to export at least
one million tons of palm oil each month this year so that end-
year stocks could return to a healthy level of one million
tons. Stocks reached 1.405 million tons in end-December due to
poor exports.

"The chance for stocks to stay at higher level is there,
especially because domestic consumption is very small and exports
are not good," said one analyst in Kuala Lumpur. "The plantation
sector is still in its negative territory," he added.

Palm oil consumption in Malaysia is estimated to reach between
1.5 and 2.0 million tons a year.

Analysts said end-month stocks rose to above one million
tons starting in June 1999. Stocks showed a decline for a short
period in 2000, when March stocks were recorded at 944,000 tons
and April at 967,000 tons due to an increase in exports to India,
Malaysia's main buyer in 2000, taking 2.03 million tons.

Private forecaster Ivan Wong said in his recent estimates end-
January stocks reached 1.52 million tons and February at 1.43-
1.44 million tons. Exports stood at 835,347 tons in January
compared with 969,564 tons in December, according to cargo
surveyor SGS.

"We have to compete heavily with Indonesia in order to export
one million tons of oil each month. Indonesia is exporting oil in
large quantity and taking away our market. There should be a
willingness here to sell (at cheaper prices)," said one trader in
Kuala Lumpur.

"I see Malaysia's output reaching 11.4 million tons this year
because of the maturing trees. It's scary since we assume
Indonesia is producing close to eight million tons," he added.

Some traders said they predicted higher output in Indonesia
because of the steady exports from the country which could reach
as high as 500,000 a month since last year, while domestic
supply, which currently stands at 500,000 tons, seems to be
stable.

Indonesia is also selling products at a $5 to $10 percent
discount to Malaysian oil. Palm oil consumption in Indonesia is
projected to be stable at 3.7 million tons this year.

Traders expressed doubt on last week's agreement between
Malaysia and Indonesia to prop up the sagging prices, which now
hover at 10-year low.

"We are just doing business, which means we want more profit.
How can we cooperate when people are just desperate to sell,"
asked one trader in the Medan, provincial capital of Medan in
North Sumatra.

Indonesia and Malaysia agreed to form a working group that
aimed to become a world palm oil association. Malaysia also plans
to chop down aging oil palm trees on around 200,000 hectares
(495,000 acres) and yielding about 600,000 tons of crude palm oil
in a bid to improve prices.

"Nobody wants to do it now because prices are so low, unless
there is a decree from the (primary industries) minister," said
the Kuala Lumpur-based trader, referring to the plan to cut down
trees.

"People have to sell as much as they can to compensate the
loss due to the falling prices," he added.