27/10/06 9BUsiness Times)   - BEIJING: Palm oil futures in Malaysia, the world's biggest supplier of the commodity, may gain next year because of rising demand for its use in processed food and fuels, according to Thomas Mielke, editor-in-chief of Oil World.

Palm oil may rise to RM2,075 a tonne between April and June next year on the Malaysian Derivatives Exchange, Hamburg-based economist Mielke said. The contract averaged RM1,568 last quarter.

Rising demand in Europe for regular diesel blended with vegetable oil amid high crude oil prices may drive palm oil's gains. Palm oil, traditionally used as cooking oil or in soaps, can be added to diesel to stretch fossil fuel supplies.

"The market for palm oil will explode" should the pace of growth in biodiesel demand be maintained, Mielke said at a conference in Beijing on October 21. Demand for vegetable oil, including palm oil, may outstrip supply by as much as 5 million metric tonnes, he said.

Palm oil futures for January 2007 delivery, the most actively traded contract on Malaysia Derivatives Exchange, rose RM20 to RM1,643 and traded at RM1,638 at 3:12p.m. Singapore time.

The futures may climb as high as RM1,800 by September, Dorab E. Mistry, a director at Godrej International Ltd, one of India's biggest traders of edible oil, said in Mumbai last month.

He cited mandatory blending regulations being implemented in most countries in the European Union.

Increased imports of vegetable oils by the EU, China and India have more than offset any rising production from Indonesia, Malaysia and Argentina, the three main exporters, Mielke said. Any production cuts may drive prices to RM1,800 in the short term, he said. - Bloomberg