The tide is turning in favour of palm-based biodiesel producers, who aim to boost output in coming months because of improving margins after a near-50 percent drop in palm prices from their record high six months ago.

Industry analysts attending a three-day conference said this would prevent crude palm oil prices from falling much below 2,300 ringgit ($667) a tonne on the Bursa Malaysia Derivatives Exchange, from the current level of about 2,376 ringgit.

"Biofuels have become attractive again, that is one thing which will support prices. CPO is now cheap," James Fry, chairman of LMC International, told Reuters on the sidelines of the conference.

Palm oil hit a record high of 4,486 ringgit a tonne in March and crude oil hit a record over $147 a barrel in mid-July, prompting small biodiesel producers to halt operations in the past few months and the biggest producers to cut production sharply.

But margins for the region's biofuel producers have turned positive again, with crude oil easing to about $105 and palm oil easing at a relatively faster rate to around $700, increasing the spread between crude oil and palm oil in recent weeks.

"Biofuels can generate some instant demand which can mop up the surplus," Dorab Mistry, a leading industry analyst and director of Godrej International, told Reuters.

A Reuters poll showed last week that Malaysia's August palm oil stocks are expected to edge up 1.2 percent from a month ago as production could hit its highest level so far this year and outstrip export growth.

Fry said buoyant emerging demand for biofuels would likely limit further downside of palm oil.

"Palm oil prices will find support around 2,300 ringgit because of the biofuels demand, unless crude oil falls faster than I think."

Industry analysts said there were also not many factors, other than emerging biofuels demand, to sharply lift palm oil prices in the next six months as bumper Chinese oilseeds production at home and expectations of a good soybean crop in India would keep market sentiment subdued.

"Palm oil prices are likely to hover around $700 per tonne until February next year as the demand for biofuels will support prices," Fry said. - Reuters