The output of palm oil in Malaysia, the world's largest producer, is likely to rise to around 15.5 million tonnes this year from 14.9 million tonnes a year ago, said Sabri Ahmad, chairman of trade body the Malaysian Palm Oil Association.

"The production up to second half has not been so good, but in the second half we are seeing good crop recovery." He said Malaysia's biodiesel production of around 200,000 to 250,000 tonnes in 2006 would be friendly for prices in the second half of the year.

"Moving into 2007, there will be a big surge in the new capacity for biodiesel," Sabri told Reuters in an interview. "We are looking at 1.5 million tonnes of biodiesel in 2007." He said 10 biodiesel plants were under construction and 10 more had ordered machinery to set up the facilities. "In about 12 months' time 20 should be in production."

As countries from Europe to Asia seek ways to cut dependence on imported oil, curb greenhouse gas emissions and boost local agriculture, biofuel plants are sprouting at a dizzying pace.

Biofuels are plant-based fuels, either ethanol made from sugar or grains, which can be added to gasoline and biodiesel derived from oilseeds or palm oil and added to diesel.

Hunger for palm oil-based biofuel is so fierce it has prompted Malaysia to stop licensing new producers while the industry works out how to divide up the raw material between the food and energy sectors.

Malaysia's edible oil industry says the government has already approved 32 manufacturing licences for units estimated to produce around three million tonnes of biodiesel a year, from a total of 87 applications received.

The official, who also heads the country's palm oil giant Gloden Hope Plantations Bhd, said the company was expected to post strong earnings in the year to June 2007, fuelled by higher palm oil prices.

"If we look at 2006/07, the future is bright," Sabri said, adding that every increase of 100 ringgit in the price of crude palm oil would bring the company an additional profit of RM70 million.

Golden Hope this month started the country's first commercial biodiesel plant having an annual capacity of around 35,000 tonnes. "It has just started in July and shipments will start in August."

The company is setting up three more biodiesel plants, two in Malaysia and one in Holland, which are all expected to start in 2008. Sabri said the combined capacity of the company's biodiesel plants is 390,000 tonnes. - Reuters