11/11/06 (The Star)  -  PETALING JAYA: Malaysia's palm oil exports hit a new high in October as strong demand from Europe and the United States more than made up for slower sales to traditional markets like India and China.

The exports, up 9.1% to 1.43 million tonnes last month, lowered the country's palm oil inventory level by 11.4% from an all-time high of 1.8 million tonnes in September to 1.59 million tonnes in October.

Palm oil production also fell from a record month in September, down 13% to 1.4 million tonnes in October, according to data released by the Malaysian Palm Oil Board (MPOB) yesterday.

The lower output was largely due to seasonal factors, which would likely remain till February, OSK Research plantation analyst Alvin Tai said.

“We expect palm oil inventory to be lower in the coming months,'' he said.

Maintaining his overweight rating on the sector, Tai expects crude palm oil (CPO) prices to average RM1,750 a tonne next year. A number of industry players expect prices in 2007 to hover around RM1,800 to RM1,900 per tonne.

 
CPO prices averaged RM1,550 a tonne year-to-date.

Palm oil futures on Bursa Malaysia Derivatives have risen 17% so far this year, boosted by higher demand from overseas.

“The MPOB data is positive for CPO, but it seems the market has discounted it...investors were also more inclined to lock in some gains ahead of the weekend,'' a broker said.

The benchmark third month futures contract, the most widely traded CPO forward contract in the world, yesterday closed RM12 lower at RM1,675 per tonne, off its Nov 2 peak of RM1,724.

Rising demand for palm oil, used in cooking, cosmetics as well as for fuel, had propelled the share prices of top planters like IOI Corp Bhd and Kuala Lumpur Kepong Bhd (KLK) to record levels.

Shares in IOI Corp, the country's biggest plantation firm, rose 20 sen yesterday to a fresh high of RM18.60, up 50% for the year. Rival KLK gained 20 sen to RM13.70, or 63% higher than at the start of the year.

Malaysia and Indonesia account for some 85% of the world CPO production.

Last year, Malaysia produced some 15 million tonnes of palm oil and Indonesia, about 13.3 million. A number of Malaysian firms, led by Kumpulan Guthrie Bhd and Golden Hope Plantations Bhd, have huge plantation land in Indonesia.

Analysts expects Indonesia to overtake Malaysia this year or next as the world's top palm oil producer with new trees coming into peak oil producing age.

Supported by demand from new markets in Europe and the United States, world demand for palm oil is on the uptrend, reaching record high in October.

Compulsory labelling of trans-fatty acid in food products in the United States has prompted big food processors to use palm oil as a substitute because it is trans-fatty acid free.

Exports of palm oil to Europe is also on the increase as companies there import palm oil for biodiesel since domestic European feedstocks of rapeseed oil is believed to be insufficient.