KUALA LUMPUR (Dow Jones)--Crude palm oil futures on Malaysia's derivatives
exchange fell sharply Monday after the government said palm-based biodiesel
production has slowed down and the deadline for complete local 5% blending may
be extended, said trade participants.

  The market shrugged off a rise in Malaysia's palm oil exports, which was
close to market expectations.

  The benchmark August contract on Bursa Malaysia Derivatives ended MYR76 or 3%
lower at a five-week low of MYR2,445 a metric ton.

  Malaysia may have to extend its deadline for blending up to 5% biodiesel with
diesel beyond its current target of February 2010 due to a sharp rise in crude
palm oil prices, Deputy Minister For Plantation Industries and Commodities
Hamzah Zainudin said.

  "We won't make 5% blending mandatory. The price is so high that it isn't
logical and practical. But we will encourage local blending," he said on the
sidelines of an international conference on palm oil.

  Analysts said if prices don't ease toward MYR2,000/ton, the government may
eventually reduce the biodiesel blending to 2% in order to avoid a large
subsidy.

  The minister's acknowledgment of the slowdown in the biodiesel program has
added to the negative sentiment, said an exporter in Malaysia.

  He said this added to the selling pressure in the market.

  Initially, it was expected that implementation of the 5% biodiesel blending
would create annual demand for 500,000 tons of CPO, but currently, negligible
volumes are being used in government vehicles.

  CPO prices surged 40% in the six weeks starting April 1 before a downward
correction began.

  "We plan to have a meeting with the (commodities minister) to explain the
entire situation of price viability," said U.R. Unnithan, executive director of
Carotino Bhd., a Malaysia-based biodiesel manufacturer.

  Malaysia's biodiesel exports have also slowed down in the last two months
after the rise in CPO prices, even though there has been an increase in crude
oil prices.

  "After prices rose above MYR2,500/ton, there has been an erosion in demand,
which may reflect in export numbers for June and July," said an executive at a
global trading company.

  He said the minister's comments are an acknowledgment that the surge in
prices has affected demand for vegetable oils to make biofuels.

  This isn't restricted to Malaysia alone, as other countries such as Indonesia
are also feeling the pinch, he noted.

  Cargo surveyors estimated a rise in Malaysia's palm oil exports by 0.5%-4.7%
on month during the May 1-25 period.

  Open interest in CPO on the BMD fell to 78,542 lots Monday from 79,380 lots
Friday. Traded volume fell to 13,230 lots from 19,827 lots. One lot comprises
25 tons.

  Cash palm olein for October/November/December traded at $770/ton, said a
trader in Singapore.

  Cash CPO for prompt shipment was offered MYR20 lower at MYR2,600/ton.

Closing BMD CPO futures prices in MYR/ton at 1000 GMT:

Month      Close    Previous   Change   High    Low
Jun 09     2,540    2,595      Dn  55   2,604   2,540
Jul 09     2,475    2,553      Dn  78   2,556   2,475
Aug 09     2,445    2,521      Dn  76   2,531   2,445
Sep 09     2,429    2,510      Dn  81   2,515   2,429