Benchmark November CPO on the Bursa Malaysia Derivatives rose as much as 1.6% to MYR3,070 a metric ton, the benchmark's highest level since Aug. 15, and ended at MYR3,068 a ton, up 1.5% from Monday's settlement.
Some trade participants said tight prompt supplies of the cooking oil underpinned market.
"Production [of palm oil] is not coming in…while likely higher demand for the next two months may reduce stock levels," said a trading executive at a Kuala Lumpur-based foreign brokerage.
Planters said August production may slip 2% from July's level of 1.95 million tons, as workers go on holidays next week for the Eid ul-Fitr celebration at the end of the Islamic fasting month.
The market may rise toward the psychological level of MYR3,100/ton within the next few days as investors continue to cover short positions ahead of the holidays, said a commodities analyst in Jakarta.
But gains may be capped due to the higher margin requirements for palm oil contracts set by the BMD from Aug. 25 to manage volatility next week.
"The rise in margin rates may provide an excuse for some investors to book profits," said a commodities broker at a Kuala Lumpur-based brokerage.
The exchange raised margin rates for the spot month to MYR8,750 per contract from MYR7,250, Bursa Malaysia also raised non-spot margins to MYR8,500 from MYR7,000 for contracts that remain open at the close of business on Thursday.
In the cash market, refined palm olein for April/May/June changed hands at $1,087.50/ton and $1,092.50/ton, free-on-board Malaysian ports, said a physical market broker in Singapore.
Cash CPO for prompt shipment was offered MYR35 higher at MYR3,165/ton.
Traded volume on the BMD reached 21,871 lots, up from 11,900 Monday. One lot equals 25 tons.
Open interest was 127,134 contracts compared with 128,392 contracts Monday.
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