30/06/2011 (Business Times) - Palm oil advanced for a second day as importers replenished stockpiles to meet demand during the upcoming Ramadan fasting season and a gain in crude oil lifted the appeal of vegetable oils as biofuel feedstock.

The September-delivery contract gained as much as 1.4 per cent to RM3,106 (US$1,022) per metric ton on the Malaysia Derivatives Exchange, and was at RM3,105 at 11:57 a.m. in Kuala Lumpur. Futures are headed for a monthly loss.

Demand for palm oil is rising as buyers prepare for the Muslim fasting month of Ramadan, which starts around the beginning of August, Oil World said in a report yesterday. The tropical oil will also be in greater demand in the season starting in October as production of other oilseeds rises at a slower pace, according to the Hamburg-based researcher.

“Domestic demand and exports are expected to increase in the second half of 2011 due to the festive season,” UOB-Kay Hian Holdings Ltd. said in a report today. “With strong seasonal production in the second half, it is unlikely that the growth in exports will outpace the growth in production. As a result, higher levels of inventory and decreasing” palm oil prices are expected in the second half, it said.

May output from Malaysia, the second-biggest producer, grew 13.7 per cent to 1.74 million tons from April, the highest level in 19 months. Inventory climbed 14.8 per cent to 1.92 million tons in May from a month earlier, the highest level since January last year, according to the nation’s palm oil board. Stockpiles of the oil are expected to reach 2 million tons soon, an Oil World report said on June 21.

Exports Climb

Malaysia’s palm oil exports climbed 17.3 per cent to 1.25 million tons from June 1 to 25, compared with 1.07 million tons in the same period a month earlier, independent market surveyor Intertek said on June 25. Shipments increased 15.1 per cent to 1.27 million tons in the same period, Societe Generale de Surveillance said on June 27.

“Demand is there, especially from India and China where there is always a deficit of oil,” Rajesh Modi, a trader at Singapore-based Sprint Exim Pte., said by phone. Palm oil also gained after crude oil advanced, he said.

Oil increased 2.5 per cent yesterday, the most in almost six weeks, amid speculation that Greek lawmakers will approve austerity measures to prevent a debt default and on forecasts U.S. fuel demand will rise before the Fourth of July holiday. Crude for August delivery advanced as much as 0.6 per cent to US$93.40 a barrel on the New York Mercantile Exchange today.

Soybeans for November delivery gained as much as 0.8 per cent to US$13.2975 a bushel on the Chicago Board of Trade, while soybean oil for delivery in December gained as much as 0.5 per cent to 56.89 cents a pound.

January-delivery palm oil on the Dalian Commodity Exchange gained as much as 1.2 per cent to 8,832 yuan (US$1,366) a ton. Soybean oil for delivery in the same month increased as much as 0.9 per cent to 9,998 yuan a ton.- Bloomberg