KUALA LUMPUR, Oct 9:Palm oil has lost 6.4 per cent from record levels it hit in June but prices will rebound soon and test new highs by the end of the year, as the world’s appetite for biofuels grows and production remains stagnant.

This should help plantation firms, which earned record profits this year, to reap plentiful returns again next year, analysts said, adding that shares of these firms would be a top choice among investors in the region.

Palm oil hit a record high of 2,764 ringgit a ton in June but has since backtracked and the benchmark December contract was at 2,586 ringgit in late trade on Tuesday. The 3,000 ringgit level is reachable and it could be as early as December because we are now entering a down cycle in production, said one Malaysian trader.

The climb is going to be very fast, judging from the covering being done by refiners and importers, he added.

Palm oil has lost ground in recent weeks, along with other commodities and weak global markets generally.

But Dorab Mistry, a leading industry analyst, told Reuters last week that palm oil supplies from November would fall, which would help prices to rise again. He has forecast palm oil prices to hover in the 2,600-3,000 ringgit range in the near term.

Production is not good enough. A lot of refiners are struggling to run their refineries. Although the margin is there, they cannot get hold of supplies, said one trader based in the Malaysian state of Johor.

Malaysia is expected to produce less than 16 million tons of crude palm oil in 2007, against an earlier estimate of 16.7 million tons, while Indonesia’s output it estimated at 17-17.5 million tons.

One hedge fund manager said prices in the first quarter of 2008 would remain high. That coincides with lower production in Southeast Asia and Chinese New Year when demand is strong. Analysts said the real strength in palm oil market would come from the limited scope to boost world oilseeds production to meet the surge in demand from food and fuel sectors.

The key bullish factor is the fight for acreage, said Tan Tingmin, a plantation analyst with Credit Suisse. There is fight for acreage between grains and oilseeds.—Reuters