26/9/06 (Rueters)  MUMBAI - Bio-diesel projects will not be hit by the fall in crude oil prices as investors feel the current dip is temporary and prices will bounce back, a senior Indonesian trade official said on Monday.
 
"Even if crude oil prices go down for a while, people believe after one or two years they will again go up," said Derom Bangun, executive chairman of the Indonesian Palm Oil Association.
Palm oil can be added to gasoline to make bio-diesel at a cost of US$60-65 a barrel, analysts say, and used to run cars, power plants and factories. Crude oil prices touched a record-high of US$78.40 a barrel in July, but have since fallen to around US$60.

"Developments in bio-diesel will continue and investments on new plants will not be hampered," Bangun told Reuters at the weekend on the sidelines of an edible oil conference.

"It is not the government but private investors who will decide when and where to build biodiesel plants."

The world's top palm oil producers, Malaysia and Indonesia, have each decided to set aside 6 million tonnes a year of the commodity as feedstock for production of biofuels and biodiesel, nearly 40 percent of their crude palm oil production.

Palm oil is traditionally used in foods and cosmetics, but rising biofuel demand has sent palm oil prices soaring 12 percent this year.

However, Malaysian crude palm oil futures plunged by more than 3 percent by midday on Monday to their lowest levels in more than two months, pushed lower by a decline in the prices of crude oil and soyoil.

Biofuels are plant-based fuels, and include ethanol, which is made from sugar or grains and added to gasoline, and biodiesel, which is produced using oilseeds or palm oil.

Biofuel plants are spreading around the world as countries look at ways to cut dependence on imported oil, curb greenhouse gas emissions and boost local agriculture.

Bangun said Indonesia expected six new bio-diesel plants to be in operation by 2007, and about 500,000 tonnes of bio-diesel to be produced from three of these plants by early next year.

He estimated about 600,000 tonnes of palm oil would be used for bio-diesel production in Indonesia in 2007.

Indonesia expects about 15 million tonnes of palm oil output in 2006, of which about 11.3 million tonnes are likely to be exported and the remaining used domestically.

Bangun told the conference that growing demand for biodiesel would support palm oil prices and were likely to drive them higher in the fourth quarter of 2006 and early part of 2007.

He said during the next 12 months crude palm oil prices would be fluctuating in the range of US$510 to US$550 per tonne, cost and freight Rotterdam basis, with an average of US$530 per tonne.