6/9/06 (Bloomberg News)  -  KUALA LUMPUR Malaysia, the world's largest palm oil producer, says that it has almost run out of land suitable for new plantations of the crop, and that it will need to raise productivity of existing trees if it is to tap rising demand.
 
"In terms of land that is suitable for palm, there's not much left," the minister for plantation industries and commodities, Peter Chin Fah Kui, said Tuesday. "As a result, our strategy is to increase the productivity and yield from whatever plantation land that we have now."
 
Malaysia, together with its neighbor Indonesia, is rushing to increase palm oil production and exports amid rising demand for biofuels. Crude oil prices have tripled since 2002, driving up the cost of diesel and gasoline, and making alternative sources of energy more competitive. Palm oil has traditionally been used as a cooking oil or in soaps.
 
"There's just not enough land to plant in Malaysia," said Alvin Tai, an analyst at OSK Research in Kuala Lumpur, who has an "overweight" rating on the plantation sector. "At the end of the day, there's no other way but to expand overseas."
 
Palm oil prices rose last month to their highest in more than two years, spurred by increasing sales to China, the United States and Europe. Palm oil prices on the Malaysia Derivatives Exchange, which have risen 13 percent in the past year, gained 1 ringgit, or 0.1 percent, to 1,564 ringgit, or $429, a metric ton.
 
Malaysia wants existing palm oil plantations "to produce as much as we can in terms of productivity and yield, and that is the only way we can" raise output, Chin said in an interview in Kuala Lumpur. "We have no other choices."
 
The country, which also has extensive rubber plantations, has a land area of 328,550 square kilometers, or 126,853 square miles, according to the CIA World Factbook, about the same size as Germany or the U.S. state of New Mexico.
 
Biofuels can be made from vegetable oils obtained from palm fruit, rapeseed and soybeans, or from animal fat. Biofuels can be mixed with fossil fuel to stretch regular supplies.
 
Malaysia raised the total cultivated area of palm by 3 percent this year to 4.2 million hectares, or 10.4 million acres, compared with last year's gain of 4.5 percent, according to the government.
 
Some 90 percent of the total area was covered with mature palms, said the report, an annual assessment of the economy that's released with the budget. No estimate was given for palm coverage next year.
 
Palm oil yields - measured in tons of fresh fruit bunches per hectare - were forecast to rise 0.6 percent to 19 tons this year, after gaining 1.6 percent in 2005, the report said. The oil is made by crushing the plum-sized fruit from the tree.
 
"Palm oil prices will continue to go up in the next few years," Chin said, without naming his own target. "Most analysts will say that palm oil would be in the region of about 1,650 to 1,700" ringgit a ton over the next year or two.
 
The global supply of biofuels will probably almost double in the next five years as new plants start production, according to the International Energy Agency, an adviser to 26 oil-consuming nations. Fuel output from vegetable oils worldwide is expected to triple by 2008, with most of the growth in Europe, the Paris-based agency, which analyzes energy-market trends, said in July.