Malaysia may see a decline in record stocks of palm oil from December as bad weather hits output and the government pushes forward with its biodiesel and replanting plans, an industry regulator said on Thursday.

 

Better food demand from top importers China, India and Pakistan next year could accelerate the decline in stocks in the world's second largest producer of the vegetable oil, Malaysian Palm Oil Board Chairman Sabri Ahmad said.

 

"Fortunes for palm oil might change very soon, in December, as heavy rain and even floods in some parts of Malaysia will disrupt harvesting and transportation of the fresh fruit bunches," Sabri told Reuters in an interview. "Demand from the big three Asian importers is still relatively strong because the stories of defaults have now died down with very, very affordable prices."

 

Prices for palm oil have fallen two-thirds from their March peaks to 1,438 ringgit a tonne on Thursday, weighed on by poor demand and a rise in stocks that topped 2 million tonnes in October, their highest ever. November production may rise about 6 percent to 1.75 million tonnes from 1.65 million tonnes last month, Sabri said.

 

But December would see 100,000 tonnes less palm oil from November as Sabah state on Borneo island and the eastern peninsular Malaysia, which account for 50 percent of total production, will be worst affected by the floods. Late last year and in early January, floods inundated plantations in these key producing areas, driving prices up by nearly 17 percent.

 

GOVERNMENT SCHEMES: The government is likely to carry out its plans on biodiesel and replanting over a year in 2009 rather than taking two years or more, Sabri said. "The biodiesel association has agreed to buy up 500,000 tonnes of crude palm oil in 2009," Sabri said.

 

Government vehicles will initially start using biodiesel in February, Prime Minister Abdullah Ahmad Badawi announced last month, reviving a long-stalled push to use palm oil as a fuel. The current capacity for biodiesel in Malaysia is 1.6 million tonnes, but many plants are running below capacity because of poor economics. Sabri - who is also an adviser with Sime Darby, the world largest listed palm plantation firm - said the government was in talks with big planters to fully enforce replanting programmes.

 

An estimated 600,000 to 700,000 tonnes could be removed next year if replanting schemes are followed closely, Sabri said. However, traders said the impact of the biodiesel and replanting schemes would be small, accounting for around 6.6 percent of the government's crude palm oil output forecast of 18 million tonnes for next year.

 

"If I recall, during the 1997 recession, palm planters hardly replanted. The government backing and incentives are not going to do much," said one trader, referring to a plan to give $50 million to encourage planters to remove oil palm trees aged 25 years and above.