KUALA LUMPUR, Aug 22: Malaysian crude palm oil futures closed 1.2 per cent higher on Wednesday as expectations that Indonesia will raise export duties and strong demand for the festive season lifted the market.

Prices were also supported by Asian stocks, which traded stronger on Wednesday, lifted by hopes of a US interest rate cut to soothe turbulent market.

The benchmark November contract on the Bursa Malaysia Derivatives Exchange settled up 29 ringgit, or 1.2 per cent to 2,425 ringgit ($697) per tonne, after going as high as 2,450 ringgit.

The market has been moving up because of rumours that the Indonesian government might increase export duty to around 9.5-10 per cent, said a leading trader.

There is also talk that the government might raise the cooking oil subsidy quite significantly as an alternative to hiking up export tax and this will make Malaysian palm oil more attractive.” Other traded months rose between 33 and 45 ringgit in overall volume of 11,840 lots of 25 tons each.

Indonesia is considering subsidising cooking oil prices to make the vegetable oil affordable for the poor, Industry Minister Fahmi Idris said on Tuesday.

The government is also studying a proposal to allocate between 18 and 20 percent of its crude palm oil output to ensure supplies for local cooking oil processors if the rise in export tax fails to cut cooking oil prices.

In mid-June, Indonesia raised the export tax on crude palm oil to 6.5 per cent from 1.5 per cent and palm oil products to 6.5 per cent from 0.3 per cent, to stabilise cooking oil prices which were up about 30 per cent at that time.

The move was made to discourage exports and increase supply to domestic markets at lower prices.

Asian vegetable oil demand has picked up from July as buyers from the Middle East to China lock in supplies for the festival season, especially for the holy month of Ramazan and the Chinese mid-Autumn festival, both due in September.

The season of strong demand is under way and coupled with the current lower palm oil prices, the market should be working its way up, said one trader.

Palm oil, used in products ranging from confectionaries and cosmetics to biofuel, is more than 12 per cent off an historic high of 2,764 ringgit reached in early June.

Exports of Malaysian palm oil products during Aug. 1-20 rose 13.7 per cent to 732,667 tons from 644,332 tons shipped between July 1 and 20, cargo surveyor Intertek Testing Services said on Monday.

Another surveyor, Societe Generale de Surveillance said exports during the same period jumped 20.6 per cent to 769,315 tons.

External factors are not such a major influence but steady stock markets in Asia have pitched in to support palm oil, said another trader.

MSCI’s measure of Asia Pacific stocks excluding Japan was up 1.2 per cent at 0645 GMT, following a 6 per cent jump on Monday its biggest one-day percentage gain since September 1998.

Palm oil traders have kept a close eye on financial markets in a bid to gauge the impact of the US mortgage crisis on world demand for consumer goods.

November palm oil on Singapore’s Joint Asian

Derivatives Exchange was untraded by 1022 GMT.

In the physical market, crude palm oil for August shipment in Malaysia’s southern region was quoted at 2,535/2,545 ringgit a ton. Deals were done between 2,510 and 2,550 ringgit.---Reuters