10/08/05 (Herald Tribune) - Palm oil futures are forecast to rise asmuch as 19 percent in the next 12 months, as India and China buy morecooking oil and record petroleum prices bolster demand in Europe forsubstitute fuels, according to analysts.

"I see palm oil rising to $425 a ton," said Christine Salim, head ofresearch at Samuel Asset Management, whose portfolio includes oil palmplantation companies like Astra Agro Lestari.

Prices of palm oil have fallen 3.4 percent this year in Kuala Lumpur to1,340 ringgit, or $357, a metric ton, compared with a 16 percent gain insoybean oil in Chicago.

More than a third of palm oil imports are by China and India, where foodcompanies typically blend edible oils in generic packaging, making iteasier to increase the proportion of cheaper products. A recovery inprices would benefit companies like Astra Agro and IOI that haveplantations in Malaysia and Indonesia, where 85 percent of the world's oilpalms grow.

"There's growing demand in both India and China, and other parts of theworld for palm oil," said Leo Tameeris, regional director for strategy atNoble Grain Asia. He said palm oil prices could exceed $400 a ton in thenext year.

Palm oil for October delivery fell 4 ringgit, or 0.3 percent, to 1,340ringgit a ton on the Malaysia Derivatives Exchange on Monday. Soybean oilfor December delivery rose by 0.20 cent, or 0.8 percent, to 24.12 cents apound on the Chicago Board of Trade.

Consumption of palm oil in China and India will rise 5.7 percent in theyear ending September 2006, according to the U.S. Department ofAgriculture.

In developed regions like the United States and Europe, per capitaconsumption of vegetable oils was about 50 kilograms, or 110 pounds, lastyear, while developing countries like China and India consumed 18kilograms to 19 kilograms, relying on cheaper animal fats, said P.R.Thakore, vice president of marketing for Pan-Century Edible Oils, a traderin Malaysia.

Global per capita consumption will rise 16 percent in the next 10 years,he said.

In India, producers use soybean oil and palm oil for blending withmustard, peanut or rapeseed oil into edible fats like vanaspati or ghee.India is among the world's top producers of peanut oil and rapeseed oil.

Prices of some vegetable oils, including rapeseed, have risen because theyare being used increasingly as an alternative to diesel fuel, which hasbecome more expensive as a result of record world petroleum prices.

Europe plans to replace 2 percent of its fuel with bio-diesel this year,and as much as 5.75 percent by 2010, according to the EuropeanParliament's Web site.

Demand in Europe for rapeseed oil as a fuel substitute has helped push upprices of rapeseed, or canola, by 5.3 percent to $287.10 a ton on theWinnipeg Commodities Exchange this year.

"Demand in Europe for bio-diesel is very strong," said Salim at SamuelAsset.

The pineapple-like fruit of the tropical oil palm may increase inimportance as a motor-fuel additive because the trees yield more oil perhectare than other oilseeds, Thakore said. The palms produce 20 tons ofoil per hectare, compared with about 2.3 tons for soybeans, he said.

An increase in prices would probably bolster the shares of plantationcompanies, said Jason Chong, a fund manager at UOB-OSK Asset Management inKuala Lumpur.

"Palm oil stocks in Malaysia move very much in tandem with palm oilprices," he said. "The move toward bio-fuel in Europe will augur well forlong-term fundamentals."