(Food Business Review.com) 20/4/06  - Malaysian officials have warned that prices of palm oil could increase by as much as 5% if demand in Europe continues to rise.
 
Palm oil, used for cooking, margarine and even some beauty products, it is one of the most successful commodities produced in Malaysia. This success is likely to continue as European demand for the product grows, pushed along by rising fuel prices and a desire to find an alternative fuel.

Palm oil is the cheapest of all edible oils and is currently in plentiful supply. However, with the increases in fuel prices continuing, the Malaysian Palm Oil Association believes it is inevitable that palm oil prices will also rise.

This increase is predicted despite expectations that domestic output will grow. The association sees China and India as other key countries likely to push up prices. China is expected to buy approximately 3.5 million tons this year, up from 2.9 million in 2005, while Indian demand may grow as a result of the government's new policies on genetically modified food, applying tighter regulations on labeling of exported products.

The association recently said a mismatch exists between refining capacity and crude palm oil (CPO) supplies in Malaysia. It called for licenses to be given to companies in those states that have plantations and can source at least half of their CPO from within the company or related parties.

With the expected increase in demand for the product, the group is calling for the government to encourage investments in diversified sectors rather than concentrating on pure refining.

There are also calls in Malaysia to reduce the differences between import duty on crude and refined palm. At the moment duty on CPO is 80% compared to refined oil which is around 90%, equating to a tariff rate nearly $25 higher than CPO. This difference encourages greater CPO imports, which could mean loss of revenue for the government.