08/11/2007 (Euro2day) - Crude palm oil is expected to hit $1,000 per tonne in the next few months and remain high for a decade, producers and analysts say, as supply is unlikely to match demand for food and biofuels.

The prediction coincides with a Greenpeace warning of disastrous climatic consequences if forests in Indonesia, the largest producer, continue to be converted into oil palm plantations without control.

Dorab Mistry, a director of Godrej International, the Indian chemicals group, told an industry conference on Thursday he expected demand for vegetable oils, including palm oil, to climb by 5m tonnes next year. Supply would probably rise by 3.9m tonnes, almost 90 per cent of that coming from palm oil.

It was difficult to see an end to high prices in the medium term, he said. "The supply response will have to come from technology, which hasn't happened yet."

Derom Bangun, head of the Indonesian Palm Oil Association, said he expected the price to rise from $900 per tonne to $1,000 and then dip to average $900 next year, a prediction shared by many in the industry. Prices have already climbed more than 55 per cent this year.

In recent years, say analysts, the correlation between crude palm and crude oil prices has become increasingly strong.

As crude oil approaches the $100-a-barrel mark, Chris de Lavigne, an analyst with Frost & Sullivan, the research firm, says it is unlikely to fall so low that palm oil to will drop below $600 per tonne, which is two to three times current production costs. "By 2020-2030, world energy demand will be the equivalent of 120m-130m barrels [of crude oil] per day," he says. "We're now struggling at 86m."

However, the development of the palm oil industry in Indonesia, which is expected to produce 17m tonnes this year and 18.5m tonnes next year, is hampered by poor plantation management and unclear land use definitions.

As concerns about the social and ecological cost of palm plantation expansion rise, Indonesia's reputation for allowing massive deforestation and ignoring local people's rights can also deter new investors.

Mr Mistry said that as the world struggles to meet its energy needs, prices of the highest yielding biofuels, including palm oil, would benefit most. "If the world goes for biofuels and . . . wants to minimise the land used, the world should go for palm and sugar."

Bears were scarce at the event. Leonard Beschizza, head of sales at Lonsum Singapore, a plantation company, said: "The only reason to be bearish is because everyone is bullish, although that doesn't mean I'm not bullish."