Palm oil industry wary of uncertain futures

By Neil Merrett

- Last updated on GMT

Related tags: Palm oil, Hydrogenation, Trans fat

Malaysian palm oil futures hit an eight year high last week, as
rampant demand by food and biofuels continues to
deplete global stocks.

The value of the market rose by 4 per cent between Monday and Thursday peaking 2,205 ringgit (€473, $641) a tonne - a level unseen since December 1998. The rise means further cost hikes for the food industry, which is becoming increasingly reliant on palm oils as an alternative to oils high in unhealthy trans fats. The price hikes were in response to the latest data from an industry body in Malaysia, warning that the country's stocks were at a 19 month low. According the the Malaysian Palm Oil Board, Malysai's output grew by 1.2 per cent to 3.19 million tonnes, with local demand also doubling over the same period. Malaysia and Indonesia dominate global palm oil production, the two accounting for an estimated three quarters of total output. As such, any shortfall within the two countries is seen as a reflection of the health of the global supply for the product. The rise in supply and price follows a steady increase in demands for the product throughout last year. Global palm oil consumption in 2006 increased by 6.6 per cent to 35.3m tonnes, according to figures from the US Department of Agriculture (USDA). This trend is expected to continue in 2007, with an estimated 5.5 per cent consumption rise, the USDA forecasts. This increase in consumption is being driven in part by biofuel demand, and in the food sectory, by growing consumer health awareness. Food processors are using more and more palm oil as it is trans fats free. Trans fatty acids are a by-product of hydrogenated fats, which have increasingly been linked to heart problems. In addition, the palm oil industry has been quick to emphasise that the oil is antioxidant-rich. However, not all are happy with the growing reliance of global consumers on palm oil. Environmental groups are concerned that the growing interest in the oils is resulting in the destruction of wildlife. Last year, pressure group Friends of the Earth (FoE) published its "Oil for Ape Scandal" study, which claimed that that without urgent intervention the palm oil trade could cause the extinction of the orang-utan ape within 12 years. The problem, according to FoE, is that over 89 per cent of all palm oil is produced in Malaysia and Indonesia, and as a result almost 90 per cent of the orang-utan's habitat in Indonesia and Malaysia has now been destroyed.

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