03/03/2011 (Bloomberg) - Palm oil advanced for a second day as higher crude prices increased the appeal of the tropical commodity for biofuel even as analysts forecast a rebound in supply and larger stockpiles.

The May-delivery contract climbed 1.2 percent to 3,590 ringgit ($1,182) per metric ton, the highest close in more than a week. Palm oil has gained 37 percent in the past year, boosted by demand and supply disruptions caused by rains.

Crude oil advanced for a second day in New York, exceeding $100 a barrel, amid speculation that turmoil in the Middle East may spread from Libya to Iran, the second-largest producer in the Organization of Petroleum Exporting Countries.

“Rising crude oil prices could make biodiesel production viable again,” HwangDBS Vickers Research Sdn. said in a report today. “Additional demand from this energy segment would help to absorb higher palm oil supplies.”

Palm oil fell 8.9 percent in February, the first drop since June, amid speculation supplies may rebound from Malaysia and Indonesia, the two biggest growers, as excessive rains ease.

The La Nina weather event, which brought heavier-than-usual rainfall to parts of Southeast Asia, continues to weaken and may prompt a return to neutral conditions by the Southern Hemisphere winter, the Australian Bureau of Meteorology reported today.

Malaysian inventories may be replenished by a recovery in fresh-fruit bunch yields from April, HwangDBS said. Palm oil may average between 2,500 and 3,000 ringgit per ton this year and its discount to soybean oil will increase, the report said. Soybean oil is a rival product and has similar uses to palm oil.

Soybeans Increase
Soybean futures advanced on concern that heavy rains in some parts of Brazil, the world’s second-largest producer, may delay the harvest and cause flooding, hurting the quality of the crop. May-delivery soybeans gained as much as 1.1 percent to $13.905 a bushel on the Chicago Board of Trade.

Malaysia’s palm oil reserves will be rebuilt by the second half as yields improve, lowering prices, Yusof Basiron, chief executive officer of the Malaysian Palm Oil Council, has said.

Output in Malaysia dropped 14.2 percent in January from a month earlier to 1.06 million tons, the lowest level since February 2007, the Malaysian Palm Oil Board said on Feb. 10. Stockpiles fell to 1.4 million tons, the lowest level since July.

Crude oil futures have gained as Libyan rebels braced for renewed clashes with forces loyal to leader Muammar Qaddafi. Iranian protesters also clashed with security forces in Tehran, Al Arabiya television reported. Uprisings have already toppled leaders in Tunisia and Egypt.

September-delivery palm oil on the Dalian Commodity Exchange climbed 1.6 percent to close at 9,578 yuan ($1,457) a ton. Soybean oil for delivery in the same month rose 1.8 percent to 10,380 yuan a ton at the close.

CME Group Inc.’s most-active June palm-oil contract, pegged to the Malaysian benchmark price, gained 1.8 percent to $1,176.50 a ton at 5:05 p.m. in Singapore.