26/8/06 (Reuters)  -  PUTRAJAYA: Malaysia's palm oil could lose its competitive edge if prices continue to rise in response to demand for biodiesel, Plantation Industries and Commodities Minister Datuk Peter Chin said.

Palm oil is used to make biodiesel, an increasingly popular alternative to fuels based on crude oil, which has climbed to record highs over the past two years.

“What is worrying is that the price of palm may go up because of this demand,” Chin said in an interview yesterday. “If that is the case, I am afraid whatever competitiveness it has over petroleum, in terms of price, may be wiped out.”

Chin said palm oil would become unattractive for the food and fuel sectors if prices reached RM1,900 a tonne. “I think, if it touches the RM1,900-level, there would be a bit of problem for both,” he said.

He estimated the average palm oil prices would increase to RM1,600 to RM1,650 a tonne in 2007 from about RM1,500 estimated for this year.

Palm oil prices have risen around 12% this year, boosted by rapid expansion of the biodiesel industry and Malaysia's plans to start selling palm-blended diesel at domestic pumps by the end of the year.

Some analysts have put their price forecast for crude palm oil at RM1,800 to RM1,900 in the coming years.

Malaysia and Indonesia, the world's top palm oil producers, have set aside 40% of their palm oil production for the biodiesel industry.

Chin said it could take up to five years for Malaysia to use the six million tonnes of crude palm oil allocated for biodiesel. – Reuters