The price of palm oil – the world’s most widely-traded vegetable oil – is set to surge this year on rising demand, the impact of drought curbs supply in Southeast Asia, and more governments mandate the use of alternative fuels.


Estimates from Bloomberg put the median commodity price at US$564 a tonne by the end of this year, 27% higher than last year’s figure, following a 11% annualised price increase in 2006.


Edible oil demand – and shipments of both palm and soybean oil, as well as soybeans – are set to continue soaring over the coming years, according to Malaysian investment bank CIMB, with major growers shippers such as IOI Corp and KLK of Malaysia, and Indonesian firms London Sumatra and Astra Agro, set to benefit in particular.


Another beneficiary will be Hong Kong-based Noble Group, one of the leading shippers of Southeast Asian edible oils to the growing markets of China and India, both of which have rising middle classes that increasingly rely both on fried foods and on meat-based diets from animals raised on oil-based feedstocks.


Sales of palm oil, 85% of which is grown in estates in Malaysia and Indonesia, have been surging in China and India, the world’s two most populous countries. The oil is used in foods such as chocolate and, increasingly, as an additive that is blended with conventional fuels, including diesel. Many people expect demand to surge further – benefiting growers, shippers and financiers – as Europe, the US and China begin to rely increasingly on biodiesel-based energy cut from a mixture of edible oils grown in Southeast Asia, Russian and ex-Soviet states, and Canada.


Palm oil can be added to conventional fuels to reduce carbon emissions, though critics complain that both Malaysia and Indonesia are rapidly cutting down remaining forest land in order to boost plantation cover. The European Union wants biofuels to make up an average 5.75% of transportation fuel by 2010, and 10% by 2020.