Business Times Lower palm oil stock level likely to keep prices steady

Malaysian palm oil stocks stood at about 1.2 million tonnes yesterday, and this lower stock level is expected to keep crude palm oil (CPO) futures prices this year steady at between RM2,600 and RM2,800 per tonne.

"The CPO futures prices will rise steadily. We will not see any big drop or spectacular rises like last year," Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said after a visit to the Malaysian Palm Oil Board (MPOB) office in Bangi yesterday.

Dompok said he expected the benchmark CPO price to increase to RM2,700 per tonne in the next three months from a closing price of RM2,680 per tonne on Wednesday.

Spot month May south region meanwhile ended at RM2,850 per tonne on Wednesday.

Palm oil stocks in Malaysia have been showing a downtrend as the government initiated a replanting scheme to encourage planters to chop down oil palm over 25 years old, in order to stabilise the commodity's price.

As at March 2009, palm oil stockpiles fell 13 per cent to 1.36 million tonnes from 1.6 million in February, the lowest level since July 2007.

MPOB is due to release the inventory data for April next week

"If there are any changes in the underlying demand or supply, then the price will move up. If the world economic situation keeps on improving, the markets will acquire more products from Malaysia, including palm oil," Dompok said.

He said his ministry is aiming to increase the country's commodity exports between 20 per cent and 30 per cent from about 17 per cent currently, although in value terms it will be less.

Last year, Malaysia's earnings from export of commodities were RM112.4 billion, up 26.75 per cent from RM88.70 billion in 2007.

Dompok said the ministry is working to improve productivity per hectare yearly because of the limited availability of land in Malaysia, adding that only Sarawak can expect to increase acreages for planting oil palm.

"What I am looking at now is how productivity can be increased. Malaysia has been developing land for oil palm, rubber and cocoa cultivation for a long time, we are the leading nation in these crops," he added.

Dompok said in the oil palm sector the national average production was four tonnes of CPO per hectare per annum, adding that what is important now is improving the production.

The ministry will also look at how the smallholders can be assisted to be more productive, as well as narrow the price differential in cost and commodities between the Peninsular and Sabah and Sarawak, he said.

Asked whether the ministry is planning to review the blending ratio in biodiesel due to the high cost, Dompok said: "This is an area we will think about. I want to know the facts and figures and look at the economics of palm biodiesel."

Currently, government vehicles are using biodiesel with the Envo Diesel Esther (B5) brand, a blend of 5 per cent palm oil and 95 per cent diesel.

Using biodiesel will become mandatory for the transport and industrial sectors by January 2010. - Bernama