18/07/2012 (MENAFN - Qatar News Agency) - Major raw palm oil producer Indonesia is eyeing investments upwards of $2.5 Billion to augment its refining industry that will double its capacity and boost supply in Asian markets and widen its lead over world's number two producer Malaysia.

Palm oil companies here have plans to almost double refining capacity to 43 million metric tonnes (47.39 million tons). This is virtually 80% of the world's total palm oil output.

The push for doubling output is catalysed by Indonesian government's decision to reduce export duty for processed oil in October 2011.

This was the result of executives from leading palm oil companies having extensive talks with government officials from the relevant ministries in Indonesia and Malaysia to trim duties on refined palm oil to half those levied on crude.

Global demand, particularly in Asia, for refined palm oil is high as it is one of the ingredients used to bake cookies, biscuits and widely used as cooking oil medium.

No wonder, palm oil, the world's most traded and consumed edible oil. For years it buyers were ready to pay premiums of 5-10% over crude palm oil futures.

With Indonesia poised to pump out more supplies, there will be increased competition among the major producers and ultimately trigger a price war that will benefit end users. In 2012 palm olein prices have dropped around 10% due to increased supply from Indonesia.

Plans to enhance its refining capacity will help Indonesia fulfill domestic consumption of around 10 million metric tonnes annually as well as supplying the combined 20 million metric tonnes of edible oil imports required by key buyers like India and China.

Indonesia's crude palm oil output - estimated at 23 to 25 million metric tonnes in 2012 - looks set to be outpaced by the planned increase in refining capacity in the next two years. That means some palm oil firms may build refineries run at lower capacities until more edible oil supply comes in.