16/12/2007 (Forbes) - The Malaysian government is not concerned with the current high price of crude palm oil (CPO) and expects prices to remain firm going forward, supported by strong demand from China and India, Second Finance Minister Nor Mohamed Yakcop said on Monday.

Current CPO prices are not excessively high and the Malaysian government does not see an optimum price for it, Nor Mohamed said.

'We are happy that CPO is fetching high prices,' he said.

The palm oil price, as measured by the CPO futures contract traded on the Malaysian derivatives exchange, has gained more than 50 percent over the past year.

The benchmark contract for March delivery was last traded at 2,940 ringgit. It hit an all-time high of 3,068 ringgit on November 26.

'Prices will continue to be strong because of demand, especially as the middle-class in China and India grows,' Nor Mohamed said.

Surging palm oil prices will translate into higher export revenue for Malaysia, which is the world's leading palm oil producer.

Exports of palm oil products surged nearly 70 percent to 4.25 billion ringgit in October, up from 2.5 billion ringgit a year earlier.

But persistently high CPO prices do not bode well for the country's efforts to promote the biodiesel industry, which uses palm oil as feedstock.

Only five out of the 91 companies that have obtained government approval to build palm-based biodiesel plants locally have commenced operations, Minister of Plantation Industries and Commodities Peter Chin said last week.

The slower-than-expected progress of biodiesel production was mainly due to high feedstock prices, he said.