1/25/2005 - Food makers enjoying bearish prices for palm oil usedextensively in food applications could see a rise as Malaysia, the world’snumber one producer, builds plans to reduce palm oil production, writesLindsey Partos.

Haron Siraj, chief executive of Malaysia’s palm oil council, warned thisweek that if prices continue to fall for this popular vegetable oil, thecountry will replant old palm trees.

This shrewd move could lift the market, currently trading at about $340 (€260), as replanting reduces palm oil production since there is no oiloutput from new trees for three years.

Siraj said that about 10 per cent of the 3.8 million Malaysian hectares isolder than 25 years and needs replanting to increase production.

Palm oil is becoming increasingly important as an ingredient in a widerange of foods, not least because it is free of artery-clogging transfats, formed when fats are hydrogenated to make them more solid and extendtheir shelf life. Because palm oil is semi-solid naturally, it does notrequire hydrogenation.

The oils also continues to benefit from a growing awareness of the healthproperties of the antioxidant-rich oil.

Palm oil is now second only to soybean oil in terms of global demand,accounting for 28 per cent of total edible oil sales.

Although widespread commercial plantings only began in the 1990s, Malaysiais now the world’s largest producer of palm oil, with Indonesia coming upas a close second. Last year Malaysia produced 14 million tons andIndonesia 11 million, on a global total of 30 million tons.

Josh Dadd, an economist at the UK Home Grown Cereals Authority (HGCA),tells FoodNavigator.com that the devastating Tsunami that struck theregion last month, did not affect palm oil crops.

He says that prices for palm oil have been steadily falling over the lastfew weeks, due to the sheer volume of vegetable oils on the market at themoment.

Food firms are looking to cash in on the growing popularity of palm oil. Anew palm oil plant - the biggest in Europe - is due to open in the Dutchport of Rotterdam in mid 2005, owned and operated by former Unileversubsidiary Loders Croklaan.

Now the property of Malaysian palm plantation owner IOI, Loders said ithoped to process 2,500-3,000 tons of palm a day.

"Palm opens real market opportunities for Loders Croklaan, as well as forour client companies who are looking to eliminate trans fats from theirfood products," Etienne Selosse, CEO of Loders said last year.

Today, soybean and palm oil combined account for over half of all oilconsumed in the world.

After tight crops in 2003, soy oil has come in at 35 million tons for2004, offering some relief to prices, that in 2003, hit 15 year highs.Today, soy oil is selling for about $470 (€359) a ton.

The third largest vegetable oil crop, rape seed oil, reached 15 milliontons and is currently trading at about $666 (€509) a ton.

"Rape oil prices have been rising on the back of increasing demand fromfood and biodiesel industries, despite record global supplies," says Dadd.

The fourth largest vegetable oil crop, sunflower seed oil, reflects asimilar picture to rape see oil, with prices becoming bullish on a tighterbalance sheet. For 2004, world production reached 10 million tons. Pricesare currently trading at around the $690 (€527) mark.