29/03/2012 (Investors Chronicle) - Things are looking up for UK-traded palm oil producers such as MP Evans , New Britain Palm Oil and REA holdings.

Palm oil prices, which had retreated on the back of a production glut through much of 2011, have risen by 9.4 per cent in the early part of this year. The gains have intensified on gathering concerns that drought conditions in South America – brought about by the La Nina weather system – would substantially reduce yields for the continent's soybean crop. This prompted a wider rally in oilseed markets, as inventories for some of the main substitutable oils – palm, rapeseed and sunflower – are at historically low levels, according to data from the US Department of Agriculture.

Malaysian palm oil exports in March are expected to rise substantially on the previous month; the first month-on-month increase since last October. And market fundamentals underpin the recent price trend. Palm oil exports to China are rising, as the country enters a period of stock replenishment.

Worldwide consumption of vegetable oils during the 2011-2012 marketing year is expected to outstrip supply, exacerbated, in part, by rising demand from the global biofuel industry, which is faced by a twin-dilemma arising from burgeoning sugar prices. Curiously, this demonstrates that the link between energy and staple food prices is as strong as ever.

Meanwhile, the US Environmental Protection Agency (EPA) recently decided to deny the palm oil industry commodity access to America's biofuel market on the grounds that it had failed emission tests; a decision that angered industry representatives from Malaysia and Indonesia. However, the decision by the EPA is still open to review, besides which the palm oil price is closely correlated to the crude oil price which still shows little sign of softening.