March 5 (Bloomberg) -- Indonesian palm oil growers including PT Sinar Mas Agro Resources & Technology are halting or amending plans to make biodiesel after the commodity's surge to a record made the projects unviable, executives said.

Sinar Mas and China National Offshore Oil Corp. had stopped a $5.5 billion biofuels plan, Director Rafael Concepcion said yesterday. PT Bakrie Sumatera Plantations was ``redesigning'' a biodiesel project, President Director Ambono Janurianto said.

Palm oil prices have more than doubled in the past year, undermining the economic rationale for adding the vegetable oil to diesel even as governments worldwide mandate greater use of alternative fuels. The increased use of palm oil and other plants including sugar was meant to stretch fossil-fuel supplies.

``The biodiesel market may shrink in 2008 as it is not viable even with subsidies,'' Goldman, Sachs & Co. analysts Patrick Tiah and Nikhil Bhandari wrote in a note today. ``With high prices, governments may review biofuel policies.''

``We are postponing it indefinitely as it's economically not feasible,'' Sinar Mas's Concepcion said in an interview in Jakarta, referring to the biofuel venture with China's third- largest oil company. ``The price of the raw material alone is already higher than the price of biodiesel.''

Palm oil futures in Malaysia, the global benchmark, touched a record 4,486 ringgit ($1,410) a metric ton yesterday, driven by increased investment in agricultural commodities and rising demand. Palm oil is also used in foods and as a cooking oil. China is the biggest importer.

`It's Impossible'

``Crude palm oil is very expensive now, it's impossible for companies to make profit if it's used as biodiesel,'' said Alhilal Hamdi, head of Indonesia's National Team on Biofuel.

The price of fatty acid methyl ester, the element derived from palm oil that can be added to fuels, was at a $1,270 a ton in Rotterdam yesterday, while gasoil with 0.5 percent sulfur gained 1 percent to $913.8 a ton in Singapore.

``If it's really economically unviable, then we need to reconsider it based on the market situation,'' Liu Junshan, China National's spokesman, said by telephone from Beijing today. ``The progress on the project is very slow.''

Sinar Mas, China National and Hong Kong Energy Ltd. said on Jan. 9, 2007 they will invest in oil palm, cassava and other crops that can be used to make biofuels in Indonesia's Papua and Kalimantan. The investments were to be made over eight years.

Bakrie Sumatera Plantations, Indonesia's fourth-largest publicly traded agricultural company by value, was changing a new biodiesel plant to make raw materials for pharmaceuticals instead, President Director Janurianto said an interview.

`We're Modifying'

``We're modifying so that biodiesel won't be the main product,'' said Janurianto. ``So, we will be producing more non- fuel products.'' The proposed facility, which will open in 2010, was to have made 100,000 tons of fatty acid methyl ester a year.

Hamdi, the head of Indonesia's National Team on Biofuel, said last year that companies may invest $12.4 billion in biofuel projects in the Southeast Asian nation. Indonesia planned to invest 200 trillion rupiah ($22 billion) over the next five years to promote the production and use of alternative fuels, Energy Minister Purnomo Yusgiantoro said in 2006.

Governments may delay the implementation of higher mandated volumes of palm oil in fuels because of the high prices, Tiah and Nikhil, the analysts at Goldman, wrote today. Palm oil prices may drop as much 20 percent over three months, they said.

Operations Halted

Most of the 15 Malaysian makers of palm oil-based biodiesel have stopped operations because of losses, the Malaysian Reserve reported Feb. 27. Malaysia may revoke some biofuel licenses as the product was too expensive, Peter Chin Fah Kui, minister of plantation industries, said in December.

Credit Suisse Group raised its projection for average palm oil prices to 3,600 ringgit a metric ton compared with the previous forecast of 2,800 ringgit a ton, according to a report today from analyst Tan Ting Min.

Palm oil declined as much as 4.2 percent to 3,928 ringgit a ton, and traded at 3,954 ringgit at the lunchtime break on the Malaysia Derivatives Exchange. The decline extended yesterday's drop of 5.3 percent.

To contact the reporter on this story: Wahyudi Soeriaatmadja in Jakarta at wahyudi@bloomberg.net

Last Updated: March 5, 2008 00:07 EST