Transcripts

Palm... The Other Oil Of Interest

SUSIE GHARIB: With the rising price of crude oil has been a concern lately, prices are also rising for another type of oil: palm oil. It's a commodity worth about $13 billion a year with more than half of that coming from Malaysia. Palm oil prices are soaring due to poor soy crops in the U.S. and elsewhere. Rian Maelzer reports.

RIAN MAELZER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's poured into woks and pans and processed into foods, cosmetics, and detergents. World production of palm oil hit 27 million tons last year, second only to soy. Palm oil may be widely used in Asia and Europe, but it's been virtually shunned in the U.S. since the mid-1980s. That's when the American soy industry launched a campaign highlighting health concerns about the high saturated fat content of palm oil. But now it's soya and other oil producers that are on the defensive. Come 2006, the U.S. Food and Drug Administration will require all food products to label their content of trans fatty acids, a type of fat linked to heart disease. Trans fat is produced when liquid oils such as soya are hardened for use in products like margarine, baked goods and snack foods. But palm oil is already a semi-solid, so producing food with it doesn't create any trans fat and that's prompting U.S. food manufacturers to give the oil a second look.

M.R. CHANDRAN, MALAYSIAN PALM OIL ASSN.: (INAUDIBLE) find a solution to this problem and what they will do is they will blend. They will still use the soy oil but they can blend soy oil with palm oil, which is already being done by quite a number of producers, processors.

MAELZER: Malaysia's palm oil exports to the U.S. have doubled over the past five years, hitting some $750 million last year. Add to that another half a billion dollars of chemicals derived from the oil and used in a wide variety of non-food products. Still, palm oil use in the U.S. remains only 1/7 that of China or the E.U. and industry lobbyists know they still to counter a lot of negative perceptions about the healthiness of palm oil.

CHANDRAN: Now to get to each one of these, whether they are dietitians and nutritionists, medical doctors, nurses, food producers, et cetera, you know. That involves a great deal of budget allocation.

MAELZER: Lately, global demand has taken up all the supply of palm oil, but analysts say it will still pay to tap markets like the U.S.

UDAY JAYARAM, ING FINANCIAL MARKETS: I think the new markets are very important, perhaps not so much in terms of creating additional demand at this point in time, but certainly important in terms of creating that diversity so that palm oil producers are not wholly dependent on Asian demand and it sort of diversifies the risk for them globally.

MAELZER: And reducing risks is critical for an industry in which just the weather can so easily turn boom to gloom. Rian Maelzer, NIGHTLY BUSINESS REPORT, Perak, Malaysia.