11/12/2007 (The Motley Fool) - Malaysia's palm oil output will be less than forecast this year due to ongoing floods in many palm oil producing regions, a Cabinet minister said Tuesday.

Production is likely to slide to around 15.7 million to 15.8 million metric tons this year, down from an earlier forecast of 16.2 million tons, said Plantation Industries and Commodities Minister Peter Chin.

"We are expected to lose around 500,000 (metric) tons of output due to floods this year," Chin told reporters.

"The floods in Johor, one of the largest palm oil producing provinces by volume, are not a good sign and are expected to affect output," he said.

Southern Johor state, which borders Singapore, was among several states inundated by heavy monsoon rain. Seven people have died and more than 4,000 people were evacuated this year as the downpour led to flash floods.

Malaysia and neighboring Indonesia are the world's largest producers of palm oil.

Chin also said crude palm oil prices, currently hovering at about 2,900 ringgit (US$871; euro592) a ton, are too high and will be more sustainable if they come down by 10 to 20 percent.

The high prices have hurt palm oil demand and exports, he said, without giving details.

Due to the high prices, Chin said the government is exploring the possibility of using oilseeds, jathropha and biomass as alternatives to palm oil in making biofuels.

Soaring palm oil prices have put biofuel projects in jeopardy. Some producers say it might not make sense to produce palm oil-based biofuel now because the cost of the ingredient is nearly as much as that of the end product.

Chin expressed dismay that only 5 out of 91 approved biofuel projects are in operations now after one company halted productions recently because it couldn't sustain the high palm oil prices, national Bernama news agency reported.

He warned that the government may revoke the biofuel licenses if the companies don't begin operations. The 91 projects were supposed to involve an investment of 8 billion ringgit (US$2.4 billion; euro1.6 billion), he said in the report. - Associated Press -