06/06/2011 (Business Recorder) - Malaysian palm oil extended gains for a second day on Friday over concerns of adverse weather hurting the US soy crop, which gets crushed into competing soyoil, and prospects of strong demand in the coming months.

Traders are counting on Muslim countries from Egypt to Pakistan to stockpile ahead of the Ramadan observance in August, when vegetable oil consumption rises as fasting in the day is followed by feasts and dinner gatherings at night.

But some buyers may hold back until the very end as palm oil is set to hitch a ride on firmer soyoil given a string of crop scares in the US and Europe, although a bumper South American soybean harvest may limit gains.

"We are entering a weather market and with palm oil demand set to grow stronger, there is much price upside," said a trader with a foreign commodities brokerage in Kuala Lumpur.

By midday, the benchmark August crude palm oil contract on the Bursa Malaysia Derivatives Exchange rose 40 ringgit to 3,443 ringgit ($1,141) a tonne.

Overall traded volume stood at 10,456 lots of 25 tonnes each, lower than the usual 12,500 lots that change hands.

Palm oil prices are starting to rise again at a time when the market expects Malaysian stocks to rise.

"We are in a period of high prices and high stocks. There is the view that buyers are coming in on the brief dips in price," said another Malaysian trader.

"Stocks will rise because of the good weather in Malaysia but the weather concerns in the rest of the world will shift vegetable oil demand to palm oil," the trader added.

There are some signs of Ramadan demand, traders said. May exports rose above 1.35 million tonnes, driven partly by strong demand from India with a sizable Muslim population and mostly-Muslim Pakistan.

Malaysian palm oil stocks probably rose to 1.7 million-1.8 million tonnes last month as favourable weather aids output, traders said.

US soyoil for July delivery extended gains during Asian trading on planting delays in the US Midwest and strong biofuel demand.

The most-active January 2012 soyoil contract on Dalian climbed 1.5 percent on concerns about global weather affecting crops and stronger demand.