9/1/2004 (BUSINESS TIMES) - DEMAND for Malaysia's crude palm oil (CPO)for the rest of the year is expected to be strong, especially fromtraditional buyers such as China, India, Pakistan, the Netherlands andEgypt, a US report says.

"Demand will likely continue to be strong in 2003/04 as Malaysia intendsto sell more to Russia, West Asia and Eastern Europe," the ForeignAgricultural Service Department said in its 2004 report on "Malaysia -Oilseeds and Products" obtained by Business Times.

The department representative based at the US Embassy in Malaysia compilesreports on the performance of Malaysia's edible oils and oilseeds sector,namely palm oil. The department also reports on soyabean's demand/supplysituation in Malaysia. Findings of the report are submitted to the USDepartment of Agriculture.

"Malaysia continues to lead the world as the largest producer and exporterof palm and palm kernel oil.

"Domestic CPO production surged by 11 per cent to 13.2 million tonnes in2002/03." The report added that with an expected exportable surplus ofover 12.2 million tonnes of palm oil and 700,000 tonnes of palm kernel oilin 2003/04, Malaysia will remain a formidable competitor in the worldvegetable oil market.

It said an increase in palm kernel crushing led to a 12.7 per cent rise inthe production of palm kernel oil (PKO). "With additional area due forharvesting, we forecast CPO production of 13.7 million tonnes and PKOoutput of 1.7 million tonnes in 2003/04." Malaysia's palm kernel outputrose 8.3 per cent to 3.6 million tonnes in 2002/2003. In line with theexpected increase in CPO output, the outlook for 2003/04 is for anincrease in kernel production.

"A small increase in production is expected in 2004/05 due to an expansionof fruit-bearing area. There are no exports of palm kernel as all domesticoutput is crushed locally." The Malaysian Palm Oil Board has revisedforecast of CPO production downwards to hit 13.4 million tonnes in 2004from earlier estimates of 13.6 million tonnes.

Malaysia met about 15.5 per cent of the global consumption of vegetableoils in 2002/03.

Malaysia produced 13.3 million tonnes of palm oil last year, of which 12.2million tonnes worth some RM25 billion were exported to about 140countries.

"With the expected increase in CPO output, Malaysia is estimated to have abigger exportable surplus of about 12.2 million tonnes of palm oil in2003/04," the report said.

Fruit-bearing area is expected to expand to 3.5 million hectares in2003/04, while fully-matured hectare equivalent should reach two millionhectares.

For the soyabean sector, the report said domestic demand for soyabean mealweakened mainly in the poultry and pig production sector due to SevereAcute Respiratory Syndrome.

Palm oil competes directly with soyabean oil. The report said the USreplaced Argentina as the top soyabean supplier with a 37 per cent shareof the Malaysian soyabean import market while the latter remained the topsource of soyameal in Malaysia. "The outlook for 2003/04 is brighter.Malaysia's intake of US soyabean is expected to increase by 18 per cent to240,000 tonnes." Soyabean oil consumption accounts for less than 4 percent of total food-use consumption of oil in Malaysia. Malaysia's totalsoyabean oil exports are expected to trend upwards in the next two years,mainly to Singapore, Hong Kong, China and South Korea.