Green concerns add to palm oil demand woes

The world's biggest palm oil producers, under pressure to come up with ways to perk up demand from top consumers China and Europe during a meeting this week, may also have to defend the edible oil from renewed attacks over its green credentials.

Malaysia and Indonesia account for about 90 percent of the world's annual palm oil production of about 45 million tonnes.

Europe's financial woes, and China's slowing economy, have reduced their appetite for palm oil, which has left top producer Malaysia with record high inventories of 2.51 million tonne as of October, and created a major headache for traders.

The rising stocks have shaved a quarter off the value of palm oil futures this year, and prices - currently at around 2,400 Malaysian ringgit ($780) a tonne - are likely to fall further unless consumption picks up significantly.

Overshadowing a possible revival in demand is renewed concern in the West about the environmental credentials of the industry behind the world's most popular edible oil, highlighted by a recent visit by the U.S. Environmental Protection Agency to Indonesia and a French proposal to steeply increase duties on foods using palm oil, which has been dubbed the Nutella tax.

The focus will be on demand and whether weak demand will persist, Ben Santoso, a plantations analyst with DBS Bank in Singapore said, speaking ahead of the 8th Annual Indonesian Palm Oil Conference due to start on the island of Bali on Wednesday.

Palm oil is used mainly as an ingredient in food such as biscuits and ice cream, or as a biofuel.

Demand is the main issue and whether it is strong enough to absorb good production, said a Singapore-based trader. All issues voice down to demand.

High on the delegates' agenda will be the impact of a proposed cut in crude palm oil export taxes by Malaysia, which comes almost a year after Indonesia took the rug out from under its rival by reducing export taxes on refined palm oil to boost its processing industry.

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