KUALA LUMPUR: Malaysian crude palm oil hit two-week highs before paring some gains on Monday, as traders hoped stronger energy prices would strengthen the appeal of biodiesel as unrest in Libya threatens to cut crude oil supplies.
Palm oil prices were also supported by the Malaysian Palm Oil Board (MPOB) chairman's view that stocks in the world's No.2 producer would remain low until April.
Traders expect palm oil prices, which have dropped more than 2 percent so far this year, to rebound during the three-day Bursa Malaysia Palm Oil Conference this week at which analysts are likely to present an upbeat outlook for the industry.
"The Middle East is on everyone's mind. We want to see if crude oil will go to $120 a barrel, then demand for vegetable oils as a biofuel feedstock will go up," said a trader with a local commodities brokerage.
Benchmark May contract on the Bursa Malaysia Derivatives Exchange rose to its highest level since Feb. 22 of 3,700 ringgit ($1,221.324) per tonne before easing to close at 3,695 ringgit ($1,219.673).
Traded volume stood at 16,177 lots at 25 tonnes each, above the usual 15,000 lots.
Soyoil and rapeseed oil are preferred feedstocks for biofuels due to tax credits and subsidies in Europe and the Americas.
Such measures are not in place for palm oil, produced in Indonesia and Malaysia, but the vegetable oil will take up more market share in the food sector as soyoil and rapeseed oil get diverted into biofuels.
US crude rose to a 2-1/2-year high on Monday as civil war brewed in Libya, while investors kept a close eye on top exporter Saudi Arabia, home to most of Opec's spare capacity, where clerics forbid protests at the weekend.
Other vegetable oil markets were mixed. US soyoil for March delivery barely moved on Monday after the previous session's gains on favourable crop weather.
China's most active soybean oil contract for September delivery edged up 0.2 percent as traders watch the ongoing National People's Congress meeting for cues on government policy for food.
"Most likely the government will come out with a solution to balance supply-demand in the country, and probably we could see another interest rate hike -- which is mostly expected by market players," said Zhang Juan Cong, an analyst with Dadi Futures in China's southern city of Hangzhou.
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