10/10/06 (NSTP)  -  CRUDE palm oil prices (CPO), which have weakened 6 per cent over the past three months, may soften further, dragged by depressed crude oil prices when compared with palm oil-based biodiesel.

Malaysia's palm oil-based biodiesel producers are also getting jittery because when crude oil-based diesel price is cheaper than palm oil's methyl esther, it becomes no longer competitive to be in the business.

"It is commercially viable to produce palm oil-based biodiesel when oil price is at US$70 per barrel, but now that oil prices are at below US$60 a barrel, the companies which want to build biodiesel plants in Malaysia are having second thoughts," said a biodiesel plant builder who declined to be named.

Industry analysts and traders said CPO prices could also fall further in the near term as the world's energy consumers start looking at oil again now that it has become more competitive.

Nevertheless, Golden Hope Plantations Bhd group chief executive Datuk Sabri Ahmad believes that CPO prices should improve come January 2007.

"CPO prices should be at the RM1,600 level again spurred by demand from the European Union which needs one million tonnes of biodiesel per year and Malaysia should produce up to 700,000 tonnes of biodiesel production," Sabri told Business Times.

CPO prices have been firm for the past year riding on global biodiesel demand due to expensive crude oil prices.

But CPO have shed more than 6 per cent to about RM1,500 per tonne level from RM1,600 per tonne in July when oil prices slid to current levels of below US$60 (RM221) per barrel from US$75 (RM277) in September.

"I think CPO price drop will not be much and will be temporary because demand for biodiesel is still huge and oil prices are still very much volatile," said a Malaysian Palm Oil Board official.

"World demand for biodiesel is also expected to touch 10 million tonnes by 2010 and will be supported by Beijing's 2008 Olympic games which will use 100 per cent biodiesel for their trucks and buses to ferry spectators and sportsmen."

He added that oil prices are not out of the woods yet because it just take a minor disturbance in the Middle East or the Iran nuclear crisis to cause prices to surge again.