21/7/06 (The Star) - KUALA LUMPUR: The world’s top palm oil producers, Malaysia and Indonesia, have decided to set aside nearly 40% of their crude palm oil output for biodiesel production, the Plantation Industries and Commodities ministry said yesterday.

“Both countries agreed to commit a targeted amount of six million tonnes of crude palm oil each annually as feedstock for the production of biofuels and biodiesel,” the ministry said in a statement.

The announcement, which came on top of Malaysia’s strong palm oil exports, helped the benchmark third month October contract on the Bursa Malaysia Derivatives to close up 3.3% to RM1,591 (US$432) a tonne.

The volumes more than doubled to 26,936 lots of 25 tonnes each from 12,887 lots traded on Wednesday. Other contracts were up between RM29 and RM54.

The statement said the decision was part of an agreement signed between the two nations, which together produce the bulk of the world’s palm oil.

Industry analysts said the move could further boost edible oil prices, making it expensive for both food and energy users to buy vegetable oils.

“Palm oil is going to become expensive and out of reach for consumers in developing nations like India, China and Pakistan,” said M.R. Chandran, an independent commodity consultant. “Palm oil will lose its attractiveness as a cheaper form of edible oil.”

Traders said companies setting up biodiesel plants had worked out the cost of palm oil at RM1,500 to RM1,600 a tonne to be viable for making biofuel. “The whole economics of palm as raw material for biofuel will change,” said an official at a leading trading company. – Reuters