By Emily Chow
KUALA LUMPUR, Oct 24 (Reuters) - Chinese vegetable oils rallied on Monday afternoon, led by a surge in palm olein prices to their highest level in more than two years, as depleting stockpiles tightened supplies and lifted the market.
The surge in Chinese edible oils began last week - with soyoil, palm olein and rapeseed futures all hitting two-year highs. The January contract for palm olein on China's Dalian Commodity Exchange DCPcv1 rose again on Monday by as much as 3.5 percent, touching 5,946 yuan ($878), its strongest since August 2014.
Dalian's January soybean oil contract DBYcv1 and the most active January rapeseed oil contract COIcv1 traded near last week's two-year highs as well, with tighter U.S. soybean supplies contributing to and supporting the price surge.
"Port stocks of palm in China are low," said Kelvin Chow, an analyst with Rabobank in Singapore, putting them at 338,000 tonnes compared with a five-year average of 645,000 tonnes for the end-October period.
"The soy complex plays a part as well. Seeing that there is more crushing going on in the U.S., the market might be worried that there won't be enough soybeans to import from the U.S.," Chow said.
China typically buys soybeans to crush for animal feed to feed its livestock sector, producing soyoil as a byproduct. It imported 7.7 million tonnes of soybeans in August, slightly down by 1 percent from the previous month. SOY/CN
Imports of rapeseed oil have also declined following a period of negotiations over a trade dispute between China and top supplier Canada, said Tommy Xiao, an analyst at Shanghai JC Intelligence Co.
While last month the two settled the dispute and said they would start exploratory talks on a free trade pact, the long period of uncertainty has held up Canadian canola shipments. is producing less, and the import situation is tight," said Xiao.
Xiao said the Chinese government's auction of rapeoil stocks last week was all sold out, and snow in Canada has pushed up ICE Canada prices of rapeseed, supporting domestic prices there.
The weaker Chinese currency - supportive of yuan-denominated vegetable oils - and investor sentiment also played a role in the price rally, say traders and analysts.
"It's also due to what large funds are doing in China," said a Chinese trader based in Singapore. "They have a wider view and, compared with other commodities, believe vegetable oils are relatively cheap."
($1 = 6.7700 Chinese yuan)