Malaysia will ride a commodities boom in the year ahead, with soaring prices for palm oil, rubber, tin and timber providing a boost to the economy.

Palm oil has been a star performer in 2006, buoyed by the bright future for biofuels which Malaysia is aggressively pursuing. Palm oil futures contracts recently surged to their highest levels since 1999.

In a move to cement Malaysia's status as a top producer amid growing regional competition, three of the nation's leading plantation firms have begun moves to combine into the world's largest listed palm oil company.

A deal on the US$8.86 billion merger is expected to be signed in January.

Rubber prices, which reached 20-year highs earlier this year, are also expected to rise thanks to growing demand from the booming automotive sectors in China and India.

The price of tin reached an all-time high of US$11,600 per tonne on the Kuala Lumpur market in the closing days of 2006, reportedly on concerns of tight supply as Indonesia cracks down on illegal mining operations.

"As long as the mining sector does well, and the resources sector - rubber, palm oil and timber - continues to do well, that should be quite supportive of spending and income in the rural sector," said GK Goh economist Song Seng Wan.

"There's still some question mark over recent floods and low consumption, but at this point I think it still looks like Malaysia can achieve GDP growth of 5-6 percent on the basis that the export-oriented sector stays on an even keel."

The government has given a robust picture on Malaysia's economic prospects recently, saying it expects growth to exceed its projection of 5.8 percent for 2006, and reach 6.0 percent in 2007.

A leading Malaysian forecaster in December raised its 2006 economic growth projection to 5.9 percent from 5.6 percent and its 2007 forecast to 5.2 percent from 4.8 percent on the back of improved business and consumer confidence.

The influential Malaysian Institute of Economic Research said that "goodies and incentives" under a national development plan to boost the economy - and the agriculture sector in particular - had contributed to a better business environment.

Booming biodiesel industry

Malaysia's palm oil products contributed some RM27 billion in exports in 2005.

It is currently the world's biggest palm oil producer, but Indonesia - which has a much larger area for plantations - has said it aims to snatch the title by 2008. The two countries account for 85 percent of world production.

The giant new Malaysian palm oil entity will encompass plantations covering 600,000 hectares (almost 1.5 million acres), and control about six percent of the world's crude palm oil supply.

Up for grabs is the booming biodiesel industry, which is expanding rapidly due to high crude oil prices, and the priority being given to exploring alternative fuels.

Malaysia expects to double biodiesel production in 2007, to meet demand from countries including European nations racing to cut greenhouse gas emissions under the Kyoto Protocol.

Besides biofuel, demand is also growing in the US for palm oil as an edible oil amidst heightened awareness of transfats, which are linked to coronary heart disease and not found in palm oil.