JAKARTA: Malaysian palm oil climbed to its highest level in almost 12 weeks on Wednesday, supported by gains in competing oilseed markets and on expectations the country's palm oil demand would increase because of a new biodiesel policy, traders said.
In competing vegetable oil markets, the U.S. soyoil contract for December edged up 1.65 percent in early Asian trade, while the most active January soybean oil contract on the Dalian Commodities Exchange rose 2.12 percent.
Malaysia announced the "B7" mandate on Tuesday, to increase the amount of palm oil in biodiesel from 5 percent to 7 percent from November, as the world's No. 2 palm grower tries to reduce stockpiles and prop up prices that have fallen nearly 20 percent this year.
"These are all positive factors for the market," said a trader with a foreign commodities brokerage in Kuala Lumpur, adding that the onset of heavy rains in Malaysia's monsoon season would likely curb output and provide additional support.
"In Malaysia, every day it's raining. Definitely, if there's too much rain then the production will be going down."
Seasonal factors including anticipated stronger demand around the end of the year are seen supporting prices in coming days, the trader said.
By Wednesday's close, the benchmark January contract on the Bursa Malaysia Derivatives Exchange had gained 2.26 percent to 2,263 ringgit ($691.84) per tonne, its highest level since Aug. 8.
Total traded volume on Wednesday stood at 68,612 lots of 25 tonnes, well above the average of 35,000 lots traded.
Technicals showed palm oil is expected to rise to 2,295 ringgit per tonne, having cleared a resistance at 2,259 ringgit, said Reuters market analyst Wang Tao.
Palm oil prices may have bottomed out and will likely trade between 2,100-2,300 ringgit per tonne ($641-$703) in the next few weeks before rising to 2,500 ringgit by March, as output weakens and stocks ease, leading analyst Dorab Mistry said.
However, according to leading industry analyst James Fry, palm may be capped at 2,300 ringgit ($704) if Brent crude prices fall to $85.
Brent crude oil extended gains above $86 a barrel on Wednesday as traders anticipated the end of quantitative easing in the United Stated would squeeze the dollar.
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