17/07/2009 (Bloomberg) - Malaysia, the second-largest palm oil producer, is seeking new buyers in Turkey and Morocco to cut dependence on Asia and support prices, according to Plantation Industries and Commodities Minister Bernard Dompok.

The Southeast Asian country, home to Sime Darby Bhd. and IOI Corp., the world’s two biggest palm oil producers, is also in talks to supply North Korea, Dompok said in an interview. Dompok warned output next year may drop as much as 16 percent because of an El Nino weather pattern.

Malaysia wants to broaden palm oil sales, paring reliance on China, Pakistan and India, which accounted for 39 percent of shipments last year. Prices have lost about 54 percent since reaching a record 4,486 ringgit ($1,260) a ton in March 2008 as the global recession hurt commodity prices.

“The more markets you have, the more competition,” Dompok said late yesterday in the interview in Putrajaya, the nation’s administrative center outside Kuala Lumpur. “It’s a demand thing. The more demand, the price will go up,” said Dompok, who was appointed to his post in an April cabinet reshuffle.

Crude palm oil for October rose as much as 2.2 percent to 2,064 ringgit a ton on the Malaysia Derivatives Exchange, and traded at 2,054 ringgit at 12:05 p.m. That’s 54 percent higher than the three-year low of 1,331 ringgit a ton touched on Oct 28.

A price of at least 2,500 ringgit would suit the government, Dompok said. At that level, the central government gets income from growers from a so-called corporate windfall tax, helping to offset the cost of state subsidies in Malaysia that keep the price of palm-oil-based cooking oil low, he said.

‘Expanding Populations’
Turkey and Morocco are among countries with “expanding populations and rising living standards,” said Dorab Mistry, a director at Godrej International Ltd. who’s traded vegetable oils for more than three decades. In some of these markets, “expensive sunflower oil” can be “replaced with cheaper palm oil,” said Mistry.

Malaysian palm oil exports to Turkey surged 55 percent to 86,208 tons between 2004 and 2007, according to cargo surveyor Intertek. Palm oil, used mostly in cooking and as an ingredient in soaps, can also be added to diesel to make biofuels.

“The U.S. is using palm oil now,” Dompok said. The world’s biggest economy and Europe are among the top five Malaysian markets, according to Malaysian government figures.

The U.S. may import 1.1 million tons of palm oil in the year to Sept. 31 compared with 157,000 tons a decade ago, according to data from the U.S. Department of Agriculture. Over the same period, 27 European countries may import 4.3 million tons compared with 2.07 million tons, the data shows.

El Nino
While Malaysia’s palm oil production is on track this year to exceed last year’s record 17.7 million tons, output next year could shrink by between 5 percent and 16 percent if the El Nino weather pattern occurs, Dompok said. The government in April forecast 2009 output of 18.3 million tons.

The impact from the El Nino “depends on how severe it is,” Dompok said. “This drop does not come immediately, because while El Nino is on, the harvesting is still okay, but later on it will bite.”

El Nino weather patterns, caused by a warming of the eastern Pacific, can parch parts of Asia, hurting farm output. Indonesia is the world’s largest palm oil producer, and with Malaysia the two account for about 90 percent of global supply.

El Nino conditions were forming, the National Oceanic and Atmospheric Administration reported July 9, echoing warnings from forecasters in Australia. The Japan Meteorological Agency also said July 10 that an El Nino was taking place.

Malaysia aimed to increase palm oil yields from about four tons per hectare per year to six tons per hectare per year by 2020 by improving agricultural practices, Dompok said.

As oil palm estates currently occupy 70 percent of total agricultural land in Malaysia, it was necessary to boost productivity instead of encroaching on forest cover by clearing land, Dompok said, echoing comments from his predecessor.