Friday March 4, 2005 - THE Malaysian Palm Oil Board (MPOB) has allocatedRM40mil for the setting up of a methyl ester production plant in Labu,Negri Sembilan.

The plant, which will have a production capacity of 60,000 tonnes peryear, was expected to be operational within 18 months, said PlantationIndustries and Commodities Minister Datuk Peter Chin Fah Kui.

"MPOB is in the process of designing and fabricating the plant," he saidafter launching POC 2005 Annual Palm & Lauric Oils Conference andExhibition: Price Outlook 2005/2006 in Kuala Lumpur yesterday.

MPOB director-general Tan Sri Yusof Basiron said that MPOB planned to usecrude palm oil (CPO) as the raw material for the methyl ester production,which can be converted to bio-fuel. "This latest effort by MPOB will helpreduce the rising palm oil stocks," he added.

In addition, he said MPOB would look at the export potential of methylester to Europe and Turkey given the increasing bio-fuel usage in thesedeveloped countries.

Earlier, in his keynote address, Chin said the global demand for palm oilwould increase with the continued growth in world population and economicdevelopment. Organised by Bursa Malaysia Bhd, POC 2005 is one of thelargest gathering of palm oil industry experts and attended by 1,300participants from 35 countries.

"This year can be a tough and challenging year amidst the currentdeclining CPO prices due to concern over higher palm oil stocks andprospects of huge soybean supply in the world market," Chin said.

According to Chin, the most effective hedge against declining prices wasfor the industry to produce at the lowest cost.

On the CPO price performance, London-based LMC International Ltd managingdirector Dr James Fry said that prices this year would be pulled in twodirections; a potential upside trend from the support of soybean oil or adownward trend resulting from declining imports from India.

He expects the recent increase in India's CPO import tariff would bringCPO prices down towards RM1,200 per tonne in the short to medium term.

"By the third quarter, I expect an upward movement in the soybean oilmarket to lift CPO prices to approach RM1,400 per tonne before easing toclose below RM1,200 per tonne in the final quarter of this year," headded.

Fry said India, being one of the world's largest importers of oils andfats, had the ability to switch from palm oil to other soft oils and playa crucial role in determining the structure of world vegetable oil prices.

He said: "Therefore, I believe the recent increase in India's CPO importtariffs will further penalise palm oil prices."

India's import tariff advantage in favour of soybean oil was wellreflected in the European Union soy oil premium over CPO.

Fry said that from February 2001 to January this year, the averageRotterdam premium for soybean oil was exactly US$100 per tonne while theaverage value of the tariff preference for soybean oil over CPO in Indiawas US$113 per tonne.

He expects no shortages in the world's vegetable oils market this yearwith modest growth in actual stocks, after a large rise last year.

Malaysia Palm Oil Association chief executive M.R. Chandran said palm oilwas currently being traded at a US$100–US$110 per tonne discount oversoybean oil. “India's import tariff structure has distorted the pricesbetween palm oil and soybean oil although palm oil should be traded at thesame level to soybean oil,” he added.