09/08/05 (Bloomberg) -- Palm oil futures may rise as much as 19 percent inthe next 12 months, as India and China buy more cooking oil and recordpetroleum prices boost demand in Europe for substitute fuels, analystsincluding Christine Salim said.

``I see palm oil rising to $425 a ton,'' said Salim, head of research atPT Samuel Asset Management, who counts oil palm plantation companies suchas PT Astra Agro Lestari among $5.1 million of stocks she helps manage.

Prices of palm oil, the world's second-biggest vegetable oil crop, havefallen 3.4 percent this year in Kuala Lumpur to 1,340 ringgit ($357) ametric ton, compared with a 14 percent gain in soybean oil, the biggest,in Chicago.

More than a third of imports are by China and India, where food companiestypically blend edible oils in generic packaging, making it easier toincrease the proportion of cheaper products. A recovery in prices wouldbenefit companies such as Astra Agro and IOI Corp. that have plantationsin Malaysia and Indonesia, where 85 percent of the world's oil palms grow.

``There's growing demand in both India and China, and other parts of theworld for palm oil,'' said Leo Tameeris, Singapore- based regionaldirector for strategy of Noble Grain Asia, a unit of the Hong Kong-basedtrading company, which gets more than a quarter of its sales from China.He said palm oil prices may exceed $400 a ton in the next year.

Palm oil for October delivery was unchanged at 1,340 ringgit a ton on theMalaysia Derivatives Exchange today. Soybean oil for December deliveryfell by 0.04 cent, or 0.2 percent, to 23.69 cents a pound on the ChicagoBoard of Trade.

Soybean Oil

More than a quarter of world soybean oil production is in the U.S.,according to the U.S. Department of Agriculture.

Consumption of palm oil in China and India will rise 5.7 percent in theyear ending September 2006, USDA figures show.

In developed countries such as the U.S. and Europe, per capita consumptionof vegetable oils was about 50 kilograms last year, while developingcountries such as China and India consumed 18 to 19 kilograms, relying oncheaper animal fats, said P.R. Thakore, vice-president of marketing forPan-Century Edible Oils, a trader in Malaysia.

Global per capita consumption will rise 16 percent in the next 10 years,he said.

In India, producers use soybean oil and palm oil for blending withmustard, peanut or rapeseed oil into edible fats such as vanaspati orghee. India is among the world's top producers of peanut oil and rapeseedoil.

Alternative Fuel

Prices of some vegetable oils, including rapeseed, have risen because theyare being used increasingly as an alternative to diesel fuel which hasbecome more expensive as a result of record world petroleum prices.

Europe plans to replace 2 percent of its fuel with bio- diesel this year,and as much as 5.75 percent by 2010, according to the European parliamentweb site.

Demand in Europe for rapeseed oil as a fuel substitute has helped push upprices of rapeseed, or canola, by 5.9 percent to $288.60 a ton on theWinnipeg Commodities Exchange this year.

``Demand in Europe for bio-diesel is very strong,'' Samuel Asset's Salimsaid.

The pineapple-like fruit bunches of the tropical oil palm may increase inimportance as a motor fuel additive because the trees yield more oil perhectare than other oilseeds, Thakore said. The palms produce 20 tons ofoil per hectare, compared with about 2.3 tons for soybeans, he said.

``Palm oil, as the highest yielding oilseed, should be the naturalchoice'' as a bio-diesel fuel, he said.

Energy

Demand for palm oil ``will be accelerated by the increasing use of palmoil for energy, especially in Europe, which creates a whole new area ofdemand,'' Noble's Tameeris said.

Palm oil acids and alcohol are also used in shampoos, soaps and industriallubricants.

An increase in prices would probably boost the shares of plantationcompanies, said Jason Chong, who helps manage $600 million in equities atUOB-OSK Asset Management Sdn Bhd.

``Palm oil stocks in Malaysia move very much in tandem with palm oilprices,'' Chong said in Kuala Lumpur. ``The move toward bio-fuel in Europewill augur well for long-term fundamentals.''

Shares of IOI Corp., Malaysia's largest oil-palm plantation group, haverisen 17 percent since the year started to 11.1 ringgit. Astra Agro,Indonesia's biggest, has increased 35 percent in the same period to 4,200rupiah.

Growing incomes in China and India are helping demand for palm oil, whichis preferred by makers of products such as instant noodles because it hasa longer shelf life than most alternatives.

``We are eating more oils now simply because we are cooking and eatingmore dishes,'' said Han Jun, rural economy director at the Beijing-basedDevelopment Research Center of China's State Council, on July 29. ``Ourstandard of living has risen. When we go to a restaurant, we have 12dishes.''