14/6/2005 Business Times - MALAYSIA'S plantation sector is set to make acomeback in the remaining months of the year, driven by strong globaldemand, a new biofuel ruling in Europe and a possible return of El Nino, aweather phenomenon.

Analysts said crude palm oil (CPO) prices have to date defied expectationsto remain at the current level of RM1,400 to RM1,500 a tonne.

They expected the price to be well supported at that level due to thefavourable fundamentals.

Avenue Asset Management Services Sdn Bhd executive director Hoo See Khengsaid early in the year, most fund managers and analysts have discounted ordowngraded the sector and anticipated CPO prices to trend downwards.

"Surprisingly, CPO prices have managed to hold at the current RM1,400 atonne level and I expect it to remain that way until year-end due tobetter yields and harvesting. It looks like the sector will becomeinteresting again," Hoo told Business Times in a phone interview.

The European Union (EU) has ruled that by 2010 vegetable-based oil willcomprise a minimum of 5.7 per cent (from 2.5 per cent previously) of thetotal fuel consumed, to protect the environment and ensure a sustainablefuel source.

Golden Hope Plantations Bhd group chief executive Datuk Sabri Ahmad saidthe EU ruling has so far supported CPO prices as well as other edibleoils.

Kumpulan Guthrie Bhd head of marketing Abu Samah Samsuri agreed that CPOprices could be sustained at the RM1,400 a tonne level for the rest of theyear.

"There will be minor hiccups along the way but overall CPO prices couldremain firm due to the biofuel factor as well as high demand from China."Abu Samah said China will be a factor to watch because effective next yearthe republic will do away with the quota system, leaving it free to buy asmuch palm oil as it wants.

He added that palm oil's competitive price compared to soyabean oil, at adiscount of about US$60 a tonne (US$1 = RM3.80), is an attractive pluspoint that could spur palm oil demand.

He said the US ruling effective next year on the labelling of transfattyacids on food products could also spur palm oil demand due to its healthbenefits.