KUALA LUMPUR, July 5: alm oil is too expensive and prices will have to fall before demand for downstream products such as biodiesel will pick up, an influential industry analyst said on Thursday.

Prices are a bit too high and I expect them to come down to an average of 2,400 to 2,450 ringgit per ton, James Fry, chairman of UK-based commodities research house LMC International Ltd, told reporters in Malaysia.

He was referring to the spot prices of crude palm oil, which currently fetches around 2,600 ringgit in Malaysia, the world's largest producer of the commodity.

Palm oil futures have surged 76 per cent since the start of 2006, though they are more than 10 per cent off a high of 2,764 ringgit in June.

The futures price for September delivery closed at 2,482 ringgit on Thursday.

This price run-up has been driven by expectations of biodiesel demand,” Fry said on the sidelines of an industry conference.

Now this demand is not forthcoming. My feeling is that prices are a bit on the high side.

It is also impacting food demand. Prices have been climbing because of the role of palm oil in making biodiesel, which is being pushed by governments in Europe and North America as a green alternative to petroleum.

But the commodity has reached levels where there is growing concern about the impact on demand, including palm oil's traditional downstream market of processed foods.

—Reuters