KUALA LUMPUR (Dow Jones)--Crude palm oil fundamentals are still strong as the
recent fall in prices is expected to accelerate demand and help bring down
inventories from record levels, Malaysian Palm Oil Council Chief Executive
Yusof Basiron said.

  "CPO prices fell in recent weeks as they are closely linked to petroleum
prices and also because the peak production season for palm oil between July
and September has temporarily added to the stocks," Yusof told Dow Jones
Newswires in an interview.

  He said the lower prices may push up sales and help clear the excess stocks
and create a well-balanced and stable market.

  Malaysian Palm Oil Council spearheads promotional and marketing activities
for palm oil and its products worldwide and is organizing a three-day
international seminar here starting Sunday.

  More than 500 delegates are attending the seminar and will discuss, among
other issues, volatility in food and fuel prices.

  Crude palm oil prices are now almost 40% off the record high of 4,486 ringgit
($1,338.90) per ton, reached in early March.

  "Long-term fundamentals are strong and the market is able to absorb
short-term fluctuations," noted Yusof.

   Higher Output, Strong Demand


  He said the global demand for vegetable oils is growing annually by 4%-5%,
which translates into additional requirement of 6.0 million tons.

  He said most of this additional global demand is being met through higher
production of palm oil.

  He said Malaysia's palm oil output may exceed 17.0 million tons this year
compared with a production of 15.8 million tons in 2007.

  "Judging by the production during the first half of 2008, we feel very
encouraged about increasing our supply at a faster rate. Many countries now
need much more vegetable oil than before," Yusof said.

  Malaysia's palm oil output during January-July period is estimated at 9.8
million tons, up 21.5% on year.

  Traditionally, close to 55% of the annual output is during the second half of
the year. However, this may not necessarily be the case in 2008 because it
becomes difficult to carry forward the momentum when a sharp increase has
already taken place during the first half, Yusof said.

   Palm Oil Stocks Likely To Fall


  "It looks like the market is already responding to the current situation of
lower prices, and stocks fell marginally in July," he said.

  According to estimates of the government-run Malaysian Palm Oil Board,
inventories fell 2.8% by end-July to 1.98 million tons.

  Malaysia's end-June palm oil stocks were estimated at an all-time high of
2.04 million tons.

  "Inventories below 2.0 million tons are normal, it is only when they rise
above this level that they begin to get noticed," Yusof said.

  He said the stocks are expected to come down during the next few months.

  To a query whether Malaysia's palm oil stocks can fall to 1.7 million tons in
the next few months, Yusof said, "The 1.7 million ton figure is a healthy stock
level, it can happen, it is a possibility but we can't predict with certainty."


   New Demand For Biodiesel


  Yusof said after recent fall in prices of vegetable oils, there is a demand
for palm-based biodiesel.

  "Biodiesel producers are beginning to see a window of margins," he noted.

  He said due to the demand to make biodiesel, palm oil prices are increasingly
getting linked to petroleum prices.

  He said there is an additional support for vegetable oils due to the subsidy
of around $300/ton provided in the U.S. to make biodiesel.

  Yusof said the increasing use of rapeseed oil and soyoil to make biodiesel is
also creating additional demand for palm oil in the food sector.