16/11/2012 (Reuters) - Malaysian palm oil futures posted on Wednesday the highest daily gain since October 2010, lifted by a slowdown in inventory build-up in the world's second largest producer and a demand recovery for the edible oil.

Malaysia's October palm oil stocks inched up 1.1 percent to a record 2.51 million tonnes, but the rise fell short of market expectations of a 7.5 percent rise in stocks to 2.67 million tonnes.

Cargo surveyor data pointed to a demand recovery as palm oil's steep $300 discount to soybean oil has encouraged some buyers to shift to the cheaper edible oil and Nov. 1-10 exports rose as much as 22 percent from a month ago.

"We expect the lower crude palm oil price and the  substantial discount to soybean oil price would stimulate export demand in the months ahead," James Ratnam, an analyst with Malaysia's TA Securities, said in a research note.

"But historically, it would take 3 to 6 months for low prices to incentivise stocks drawdown, and hence, we expect any inventory normalisation and therefore firmer prices will only materialise in the first quarter next year at the earliest."

At the close, the benchmark January contract on the Bursa Malaysia Derivatives Exchange posted a 4.4 percent gain at 2,425 ringgit ($792) per tonne. Prices fell to a 3-year low at 2,220 ringgit on Monday, but rebounded strongly after the release of the October stocks data.

Total traded volumes surged to 33,855 lots of 25 tonnes each after a quiet morning session ahead of the Islamic New Year holiday in Malaysia on Thursday.   

Palm oil is expected to keep rebounding to 2,447 ringgit per tonne, said Reuters market analyst Wang Tao based on a wave cycle analysis.    

In a bullish sign for palm oil, Brent crude rose on Wednesday after earlier declines on lower demand outlook for the fourth quarter and amid a rebound in oil exports from sanctions-hit Iran.  

In other vegetable oil markets, U.S. soyoil for December delivery edged up 1.7 percent in late Asian trade. The most active May 2013 soybean oil contract on the Dalian Commodity Exchange closed 0.5 percent higher.   

  Palm, soy and crude oil prices at 1019 GMT

  Contract        Month    Last   Change     Low    High  Volume
  MY PALM OIL      NOV2    2150   -78.00    2150    2270       4
  MY PALM OIL      DEC2    2395  +102.00    2296    2395    1134
  MY PALM OIL      JAN3    2425  +101.00    2326    2436   17375
  CHINA PALM OLEIN MAY3    6748   +96.00    6630    6758  639082
  CHINA SOYOIL     MAY3    8448   +38.00    8322    8464  964362
  CBOT SOY OIL     DEC2   47.82    +0.78   47.03   48.17   11814
  NYMEX CRUDE      DEC2   85.83    +0.45   85.14   86.00   23002

  Palm oil prices in Malaysian ringgit per tonne
  CBOT soy oil in U.S. cents per pound
  Dalian soy oil and RBD palm olein in Chinese yuan per tonne
  Crude in U.S. dollars per barrel
  ($1=3.06 ringgit)