Malaysia biofuel industry affected by palm output drop

GUANGZHOU (Reuters) - Palm oil output in Malaysia, the world's largest producer, could fall 2 percent in 2007 due to unfavorable weather in Johor, on the southern tip of peninsular Malaysia, an industry source said on Tuesday.

The forecast is lower than that of a government report last week, which predicted output would fall 1.2 percent to 15.7 million tones this year.

Lower output and growing demand for palm oil for biodiesel have caused palm oil prices to nearly double this year to hit a record of 2,886 ringgit a ton. November futures in Kuala Lumpur <0#KPO:> stood at 2,500 ringgit on Tuesday.

High prices meant Malaysia's five biodiesel plants, with an installed capacity of 300,000 tones, were running at about half their capacity, the source said on the sidelines of a conference in Guangzhou.

Slowing output in Malaysia and new plantings in Indonesia meant Indonesia could soon exceed its neighbor as the world's top producer. But that was unlikely to happen this year, he said.

Malaysian output could recover next year, he added, echoing the government report which predicted a 2 percent recovery in 2008 to 16 million tones.

Malaysia's crude palm oil production for the first seven months of 2007 was down 7 percent at 8.0 million tones, from 8.6 million tones in the same period last year.