08/05/2012 (Channel News Asia) - Crude palm oil prices look set to climb higher in the near term, driven by strong demand for the commodity.

Analysts said they expect palm oil prices to grow by at least 6 per cent by the fourth quarter this year.

They expect factors such as supply shortage and growing consumption to lift prices higher.

Neste Oil operates the world's largest biofuel plant in Singapore.

The company produces 800,000 tons - or 1 billion litres - of renewable diesel each year.

That is enough to power 1 million cars, more than the total car population in Singapore which is about 600,000 cars.

It also consumes a lot of palm oil as the commodity makes up just below 50 per cent of the feedstock mix.

Petri Jokinen, managing director, Neste Oil Singapore, said: "The production has been increasing very rapidly. If you look at the last few quarters, it has been doubling the production volumes.

"The production volume in Q1 2012 was already more than 300,000 tonnes in one quarter. That is increasing still, compared to the previous quarter. That is a good indication that the demand for the products has been developing very favourably."

Experts said strong demand for biodiesel is an important driver of demand for crude palm oil in the middle and long term.

Global crude palm consumption is projected to grow from 49.3 million tonnes in 2012 to 52.9 million tonnes by 2014.

Of which 20.7 million tons will be for biofuels.

Demand for palm oil is also projected to outpace other edible oils.

Abah Ofon, soft commodities analyst, Standard Chartered, said: "We're looking at the demand (for palm oil) growing in the region, at about 8-10 per cent year-on-year going forward. That's quite significant considering that edible oil demand is expected to grow just below 7 per cent."

Palm oil prices have declined about 5 per cent in recent weeks. But analysts said the correction will only be temporary.

For companies such as Neste Oil, the rising palm oil prices may impact its product.

"The price of our product is highly dependent on the feedstock price. Feedstock prices have been going up and that has definitely been increasing our product prices in the last quarter or so," said Mr Jokinen.

Some firms have started to look for alternatives to reduce its reliance on palm oil.

This includes diversifying their feedstock to include waste fats imported from Australia and New Zealand.