HAMBURG (May 14 2003) : Malaysian palm oil output could fall in mid 2003because of drought damage to trees but will rise again later in the year,Hamburg-based newsletter Oil World said.

"Palm trees were affected and stressed by drought last year and in someareas again in early 2003 and this will show up with a lagged response andcorrespondingly lower yields in 2003 and 2004," it said.

"It is possible that there will be an early peak in Malaysian palm oilproduction this year with production falling back again in the middle ofthis year and making a second peak sometime later."

"For the full calendar year 2003 the higher than earlier expected palm oilproduction will moderate previous expectations of relative bullishness ofoils."

But Oil World does not agree with some forecasts of Malaysian palm oilproduction rising to 12.8 to 13.0 million tonnes this year against 11.9million tonnes in 2002.

The newsletter currently estimates Malaysia's 2003 output at 12.6 to 12.7million tonnes.

Market attention has been more focused recently on supply rather than ondemand, which it believes remains high.

"Despite larger than expected production, current Malaysian stocks arestill relatively low and less than one month's requirements," itadded.-Reuters