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.