Malaysia forecasts higher palm oil prices on biofuels

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Sept 4: Malaysia, the world’s largest palm oil producer, may export 4.4% more of the commodity next year as output and prices surge amid rising interest in its use as a fuel additive, the government forecast.

Overseas sales may rise to 14.6 million metric tonne in 2007, boosting export earnings 14.5% to 24.9 billion ringgit ($6.8 billion), the ministry of finance said in its 2006/07 Economic Report.

Average prices may gain 10%, it said. Improved yields, an expansion of the area covered by mature oil-producing palms and higher prices “are expected to contribute toward higher production,” said the ministry’s report, an annual assessment of the economy that’s released with the Southeast Asian nation’s budget.

Palm oil prices have risen to their highest in more than two years, spurred by rising demand from China, the US and Europe for the commodity as a renewable fuel, and its traditional use as a cooking oil. Higher crude oil costs have made biofuels —diesel and gasoline mixed with natural additives—more competitive.

Palm oil futures reached 1,693 ringgit a tonne on August 9 on the Malaysia Derivatives Exchange, their highest since May 2004. Prices have risen 12% this year, benefiting plantation companies including IOI Corp. in Malaysia and PT Astra Agro Lestari in Indonesia.

Crude palm oil is expected to average 1,500 ringgit a tonne this year, 7.6% higher than 2005, the report said. It may gain a further 10% to 1,650 ringgit in 2007. Palm oil is Malaysia’s largest source of export earnings.

In the budget address, Prime Minister Abdullah Ahmad Badawi said Khazanah Nasional Bhd., Malaysia’s state investment agency, will set up a 200 million ringgit agriculture fund to develop biotechnology as the country seeks to boost biofuel use.

There’s “increasing demand for palm-oil based biodiesel,” the ministry’s report said. Total palm oil production would increase by 4.3% this year to 15.6 million tonne, and by a further 3.8% next year to 16.2 million tonne.

The global supply of biofuels may almost double in the next five years as new plants start production, the International Energy Agency, said in July. The Paris-based agency, an adviser to 26 oil-consuming nations, analyzes energy-market trends.