25/2/06 KUALA LUMPUR ( The Star) - Indonesia is likely to overtake Malaysia's role as the world's largest crude palm oil (CPO) producer this year with an estimated production of 15.2 million to 15.4 million tonnes.

Malaysia's CPO output this year, however, is targeted to remain stagnant at last year's level of 15 million tonnes, participants learnt during a panel discussion at the close of the Palm and Lauric Oils Conference & Exhibition: Price Outlook 2006/2007 (POC2006) yesterday.

The participants were also told that CPO price would be determined by factors such as increasing demand for palm-based biodiesel and biofuel, India's budget announcement next Tuesday to slash palm oil import tariffs, and demand overtaking supply due to anticipated lower world CPO output.

Other contributing factors are the La Nina dry weather phenomenon, and the switch to sugar cane and wheat in existing soybean acreage in South America due to growing ethanol demand.

On Indonesia's status as the top world CPO producer, Malaysian Palm Oil Promotion Council chief executive officer Tan Sri Yusof Basiron, who chaired the panel discussion, said being number one or two was irrelevant. 

He said both countries must instead focus on producing good quality palm oil for the world market.

“Currently, I believe more than 50% of Malaysia's CPO production is dependent on Indonesian migrant workers, while 20% to 25% of Indonesia's total production is actually contributed by Malaysian plantation companies investing there,” he added.

Yusof said Malaysia and Indonesia should look at addressing issues like preventing distortion of the import tax regime imposed by India, pressure by non-governmental organisations that make palm-based biodiesel acceptance difficult in Europe, and the current huge discount in palm oil trade against other world vegetable oils like soyoil.

OilWorld Ista Mielke director Thomas Mielke and BioX group managing director Andro Hendriks concurred that the impact of biofuel and biodiesel would be felt in the later part of this year or early next year.

Mielke said 2006 would be a dynamic and challenging year for CPO, while Hendriks said palm-based biodiesel held strong potential to cater for the growing demand for biofuel.

Dorab Mistry, director of India-based Godrej International Ltd, said world CPO demand had exceeded supply for the second consecutive year in 2005 and “if this happens for the third year, we shall have a bull market.”

He said for 2006/2007, world CPO demand was expected to increase by six million tonnes and possibly higher “if more biofuel and biodiesel projects take off later this year.”