Crude palm oil (CPO) prices, which have softened to RM3,300 a tonne currently, are expected to stabilise between RM3,000 and RM3,500 a tonne by year-end due to strong crude oil price and steady global demand.
Malaysian Palm Oil Association vice chairman Boon Weng Siew said CPO prices will be linked to the price movements of crude oil.
"When crude oil price goes up, the industy will look at vegetable-based oil such as CPO as an alternative.
"When that happens, the market will worry whether there will be enough CPO supply for food usage causing CPO prices to be strong," Boon told reporters after its 12th annual general meeting yesterday.
Boon, who is also Malaysian Estate Owners' Association president, said although the direct use of palm oil for biofuel has not been very encouraging, it is increasingly replacing other oilseeds such as rapeseed oil, which has been diverted for biofuel production.
Boon said should CPO prices remain at this level throughout the year, Malaysia's export earnings for 2011 are also expected to exceed the all-time high of RM65 billion in 2008.
Malaysia sold almost RM50 billion in palm oil export receipts last year.
On another note, Boon said the 125-member association, which represents 50 per cent of the industry spanning 4.6 million ha, will ask the government to review the cooking oil subsidy scheme which has not reached its target market.
"The government has to review the scheme upwards because since May 2007 until April this year, out of the RM2.6 billion subsidy, half goes to the non-households including hotels, hawkers, restaurants, small industries and smugglers and not the targeted household users," said Boon.
Introduced in 1995, the scheme was meant to alleviate the cost of food items to help the low income group and rural population.
As a result, cooking oil in the domestic market is sold at a relatively low price, resulting in most consumers taking the present price for granted and abused by the non-target groups especially by the high income group and industries.
The government paid RM26 million in subsidies in 1995, which grew to over RM1.3 billion in 2009 following the strengthening of CPO prices.
Those in the low socio-economic group consumed cooking oil sold in sachets at RM2.50 a kg, while the middle and high-income consumers would buy in plastic bottles at RM3.60 a kg from supermarkets.
The cooking oil price is capped at RM1,700 a tonne or RM1.70 a kg through subsidies.
At the current CPO price of about RM3,300 a tonne, the government has to fork out RM1,600 a tonne in subsidy to maintain the RM1,700 subsidised cooking oil price.