Friday, January 28, 2005 - Ahead of lunar new year festivities, industriesin China are reducing their activity, and this will eventually cut demandfor certain raw materials including crude palm oil (CPO), thus weighingdown on the commodity price.

Combined with a possible revaluation of the Malaysian currency and thenorthern hemisphere winter, reduced production activity in China may putmore pressure on CPO prices that have already been in decline for somemonths.

Industry players now expect the CPO futures contract price to fall as lowas 1,230 ringgit per ton (Rp 2,946 per kg) at the Malaysian DerivativesExchange, where the global price is benchmarked, although they forecasteda rebound at the beginning of the second quarter.

"People in China usually observe the lunar new year for about a month. Atleast a week before and a week after (lunar new year), workers will takedays off. Moreover, it is winter now, so naturally there is lessactivity," PT Lampung Interpertiwi's general manager Sukatono said onThursday.

"The weakening U.S. dollar may also trigger a revaluation of the ringgit,adjusting upwards by an estimated 5 percent to 10 percent," Gabriela Gan,vice president of Malaysian trading firm TA Futures Sdn. Bhd. said.

She was speaking during Palm Oil Conference 2005: "Uses of CPO futures intrading, risk management, hedging and price forecast" in Jakarta.

A stronger Malaysian currency would make the purchase ofringgit-denominated CPO futures more expensive -- thus making thecommodity less attractive -- as the product is sold in U.S. dollars oninternational markets.

Moreover, Gan predicted that production of soybean, a main substitutecommodity for palm oil, was estimated to increase by 22 percent, making iteasier for customers to find soybean than palm oil.

Gan calculated that soybean usage would increase to 29.8 percent of theexisting stock from last year's 21.5 percent.

After Malaysia, Indonesia is the world's second largest exporter of palmoil, a raw material for, among other things, cooking oil, soap anddetergent.

Output from the two countries is expected to make up about 85 percent ofthis year's global palm oil production.

Separately, Indonesian Palm Oil Producers Association (Gapki) chairmanDerom Bangun said the country was expected to produce 11.6 million tons ofpalm oil this year, compared to last year's estimated 10.8 million tons.

Exports were projected to reach 7.8 million tons, up from last year'sestimated 7 million tons, he said.

China and India are Indonesia's main CPO markets. Indonesia also exportsto Pakistan, Bangladesh, the Netherlands and into new markets such aseastern Europe.

Mid last year, the price of CPO was quite high. At one point it reached2,005 ringgit per ton, which was the highest level since January 1999.