16/5/06 (Business Times)  - THE price of crude palm oil (CPO) is expected to reach RM1,600 per tonne, fuelled by its increasing demand for the production of biodiesel and biofuel.

But for most of this year, CPO prices are likely to be between RM1,450 and RM1,550 per tonne as demand is likely to pick up during the Muslim fasting month of Ramadan in October and an anticipated increase in demand from China and India.

Malaysian Palm Oil Association (MPOA) chairman Datuk Sabri Ahmad said the prices of CPO are expected to continue to rise to between RM1,500 and RM1,600 per tonne once biodiesel plants globally commence operations, and this in turn will bolster demand for palm oil and other oilseeds as base material for biodiesel output.

In Malaysia, at least 10 biodiesel plants are being constructed.

"Three of them are being developed via a joint venture between the private sector and MPOA," he added.

He was speaking to reporters after the opening of the Second MPOA Seminar on "New Dynamics in the Global Vegetable Oil Trade" in Kuala Lumpur yesterday.

Sabri, who is also Golden Hope Plantations Bhd chief executive, said palm oil is the preferred component for biodiesel among palm oil producers and refiners because it is cheaper compared with other oilseeds.

With its wide variety of uses such as for biodiesel, pharmaceutical and health products, Sabri said, prices of CPO are unlikely to fall below RM1,200 per tonne.

"If you look at the cycle of CPO prices for the past years, we had gone down below RM1,000 and even RM500 per tonne. But that was a different scenerio as its supply and demand was based on its use as food.

"Today, because of the wide opportunities to process the commodity, especially for biodiesel, there is a new demand for palm oil. So, I am confident that the price would not drop below RM1,200 per tonne," he said.

CPO prices softened last year after sustaining an upward trend during the past three years. The average CPO price fell 13.4 per cent or RM216 last year to RM1,394 per tonne against RM1,610 per tonne in 2004.

Meanwhile, Plantations Industry and Commodities Ministry parliamentary secretary Datuk Dr S. Vijaratnam said Malaysia's palm oil production is expected to increase by 300,000 tonnes to 15.3 million tonnes this year from last year.

"The increase is in tandem with the anticipated increase in yields of the commodity," he said.

Vijaratnam was representing Minister Datuk Peter Chin Fah Kui at the opening of the seminar.

He said the Government is currently focusing more on increasing the yield rather than expanding the hectarage of oil palm plantations.

He also dismissed claims by the West, especially its non- governmental organisations, that Malaysia is destroying its rain forest and wildlife habitats at the expense of enlarging its oil palm plantations.

"In Malaysia, we practise good forest management, and sound agriculture practices. All oil palm cultivation are on land designated for this purpose and replanting schemes are widely practised. We are not destroying our rain forests," he said.