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March 20, 2009

Malaysian firm sees rise in palm oil price

Malaysia's IOI Corp, the world's third-largest listed palm oil producer, said the price of crude palm oil could rise 20 percent due to falling domestic stockpiles.

"We see prices trading within a range of 2,000 ringgit to 2,300 ringgit, averaging about 2,000 ringgit a tonne. This should be the fair value of palm oil for the time being," said IOI Group Executive Chairman Lee Shin Cheng, without providing a timeframe for the forecast.

"Demand for palm oil is sustaining as can be seen from the drawdown of stocks in Malaysia. Palm oil stocks in Malaysia is now at a 16-month low," Lee told Reuters in an email when asked to comment on the price outlook for the tropical oil.

Lee's view on palm oil are closely followed by traders and industry analyst.
Malaysia's crude palm oil inventories fell 15 percent to a 16-month low in February, a bigger than expected drop, as production of the vegetable oil declined faster than the drop in exports, industry data showed last week.

Malaysia is the world's second largest palm producer in the world after Indonesia.

The benchmark palm oil futures contract KPOc3 on the Malaysian derivatives exchange is currently hovering slightly above 1,900 ringgit a tonne.

CPO prices have gained nearly 13 percent this year as stocks in Indonesia and Malaysia dropped to an average of 4 million tonnes from a record 5 million in December on good Asian demand.

But industry analysts last week predicted that palm oil prices will suffer from selling pressure in the second half of 2009 due to weaker commodity markets, slowing demand and an uptick in output.

IOI's Lee is maintaining his relatively bullish view, which he has held since the fourth quarter last year, even as the global economic outlook has significantly worsened over the past few months.

"The severity of the current global economic crisis has surprised everyone including the experts," said Lee.

"This crisis has affected almost all commodities adversely as economic activities slumped. However vegetable oils being a staple food item is more resilient," he added.

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