The industry association now sees 1999 output at 5.4 million tonnes, down from its earlier forecast of 5.8 million tonnes.

"Our production will fall this year because of last year's drought. We had expected output to reach 5.6 million tonnes, but in fact it will only stand at 4.8 million tonnes," Tarmidzi Rangkuti, vice chairman of the Federation of Indonesian Vegetable Oils and Fats Associations (FAMNI), told Reuters.

Rangkuti denied predictions by some traders that this year's output would rise in line with an increase in yield in palm oil trees starting in September because of the rainy season.

Some traders said September's CPO output was expected to reach 500,000 tonnes against 475,000 tonnes in August. Output would rise further in October and again in November andDecember, they said.

Dealers said the government should remove or lower export taxes on CPO and its by-products in order to avoid oversupply, as demand from households had fallen during the savage economic downturn that has hit Indonesia.

"I don't think the prediction of a production rise is true.This year's production won't even reach five million tonnes," Rangkuti said.

Rangkuti said the rainy season in 1998 would bring a recovery in production -- but 1999's output would still only stand at about 5.4 million tonnes, below the targeted 5.8 million tonnes.

Last year's drought triggered by the El Nino weather pattern battered production of Indonesia's important commodities such as rice, palm oil, coffee, cocoa and rubber.

This year, Indonesia is bracing for a prolonged rainy season induced by the La Nina weather phenomenon, which is expected to bring heavy rains to Southeast Asia but drought to parts of South America this year.

Some traders have speculated that government might lower or scrapexport taxes on CPO and its by-products because of an expected production increase.

But some said it was not production which would increase due to the rain, but rather the quality. "We are talking about the quality of the fresh fruit bunches during the rainy season," said one trader in Jakarta. The trader said rains had fallen in plantations areas mostly located in Sumatra island.

"Supply will be abundant in Indonesia because of the low demand by households while smuggling has stopped because of the media coverage," said one trader.

"I think it is a good idea if the government lowered export taxes so that local prices will not fluctuate wildly," said the trader.

Trade and Industry Minister Rahardi Ramelan was quoted by the official Antara news agency as saying last Friday the government had no plans to lower or scrap export taxes despite a fall in cooking oil prices.

Olein was being offered at 4,500 rupiah/kg in Jakarta against last week's 4,900 to 4,950 rupiah/kg.

Export taxes stand at 60 percent for CPO, at 55 percent for RBD palm oil and RBD olein and at 50 percent for crude palm kernel oil.

Police said last week they had detained 59 people suspected of smuggling CPO and seized at least 32 tonnes of fresh fruit bunches.