Three plantation conglomerates today appeared on the brink of a merger to form the world's largest palm oil group, a move that comes amid strengthening prices and rising demand.

Governnment-linked Golden Hope Plantations, Sime Darby and Kumpulan Guthrie and their units separately announced the suspension of trade in their shares until the close of trade on Nov 28 ahead of a "major corporate exercise."

A merger between them could also be Malaysia's - the world's largest producer of palm oil - biggest ever such exercise. The companies have a combined market capitalisation of RM26.3 billion and between them employ about 93,000 people.

"On the global front they could contribute a total of five to seven percent of global crude palm oil production, and on the local front it would make up to 15 percent," said a commodities analyst.

"They might want to corner the crude palm oil market because all three are government-linked companies and all three are in close proximity to each other.

"Their estates are very closely located," said the analyst, who spoke on condition of anonymity.

The government's Permodalan Nasional Berhad (PNB), a national investment fund, controls all three conglomerates, and the merger appeared to be on the cards after confirmation from deputy premier Najib Razak.

"The government supports the decision made by the trustees of PNB of which I am a member," Najib was quoted as saying by the state Bernama news agency.

"This is the position that we (the government) have taken," he said.

All three are significant players in the country's plantation sector, with Golden Hope and Kumpulan Guthrie holding land in Indonesia as well, but all have diversified interests, including property.

Sime Darby's shares at the close of business yesterday were trading at RM6.15, Golden Hope was at RM5.20 and Kumpulan Guthrie was at RM4.06.

Hike in crude palm oil prices

Crude palm oil prices have performed strongly in recent months. Crude palm oil was at RM1,400 ringgit per tonne in the Malaysian market for the first six months of the year but has risen to RM1,800 in the last month.

Analysts say the rise is on the back of supply fears with Malaysia and Indonesia, the world's top producers of crude palm oil, stockpiling for the creation of biodiesel and the impact of the El Nino weather system on crops.

The rise has also tracked similar rises in other edible oils such as rapeseed and soy, while demand from the United States is on the up.

However analysts said the merged entity would still be unable to compete with other major privately-owned, more efficient and better-managed Malaysian players such as IOI Corporation.

"Being big doesn't mean that it's good," said another analyst with a local brokerage house, who asked not to be named.

"By listing it on an overseas market you get a better key rating. Apart from that there is no positive or value add to it," he said.

Malaysia also aims to become the world's top producer of biodiesel.