KUALA LUMPUR (Dow Jones)--Crude palm oil output in the world's largest producers, Indonesia and Malaysia, will likely rise sharply this year as more trees begin to bear palm fruits following a major palm plantation expansion a few years ago, a leading industry analyst said Wednesday.
Palm oil prices on Malaysia's derivatives exchange hit a record high of MYR4,486 a metric ton in March 2008, leading to a boom in oil palm planting. The benchmark May contract on Bursa Malaysia Derivatives was trading at MYR3,572/ton at midday, down MYR12 from Tuesday's close.
The growth in oil palm plantings in response to high prices is starting to be reflected in mature areas, James Fry, chairman at London-based agribusiness consultancy LMC International Ltd., told an industry conference. "With (oil palm) yields back on track, world CPO output would rise by 3 million tons," he said.
According to data compiled by LMC, mature oil palm areas in Malaysia have risen by 12%, while Indonesia's area is up 24%, since 2008.
Global vegetable oil prices have declined over the past few days, triggered by rising crude-oil prices due to geopolitical unrest in the Middle East and North Africa on the back of concerns that consumers will have to ration consumption to
cope with higher energy prices and rising inflation.
As governments raise interest rates and tighten credit to curb inflation, economic growth will slow and may drag the prices of energy and agricultural commodities, Fry said.
In a worst-case scenario, palm oil prices could fall to MYR2,250/ton in the second half of the year as CPO output rises against the backdrop of inflation-fighting measures, and crude oil could plunge to $70 a barrel, Fry said.
-By Shie-Lynn Lim, Dow Jones Newswires; +603 2026 1233; shie-lynn.lim@dowjones.
com