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SINGAPORE (Dow Jones)--Crude palm oil futures on Malaysia's derivatives exchange rose sharply Wednesday after traders renewed their focus on fundamentals due to production concerns in Indonesia and Malaysia.

The new benchmark February contract on the Bursa Malaysia Derivatives exchange ended 2% higher at MYR3,242 a metric ton.

Concerns about European debt still linger and might cap price rises somewhat, but fundamental issues will continue to drive the market, Standard Chartered commodities analyst Abah Ofon said.

"We're expecting prices to climb further in the first quarter of 2012 due to a likely decline in inventories by strong demand and production risks," Ofon said.

La Nina wet weather conditions may cause a drop in yields. Yields in Malaysia, which were 1.98 tons a hectare in September, were just 1.15 tons in January, when the effects of La Nina were felt, he said.

A trading executive in Kuala Lumpur said he expects Malaysia's November CPO production to decline 20% from a month ago to about 1.53 million tons. "We've seen very little sun in the past week". Upcoming rains may cause harvesting delays, he added.

CPO prices will likely rise in the coming months toward $1,050-$1,100/ton, equivalent to MYR3,320-MYR3,480/ton, Fadhil Hasan, executive director at the Indonesian Palm Oil Association, said on the sidelines of an industry conference in Kuala Lumpur.

Slowing land expansion in Indonesia will widen a deficit in global vegoil supplies even as South American countries are raising biodiesel requirements and food demand is rising tracking higher incomes in developing countries, he said.

Hasan expects Indonesia's CPO production in 2011 to reach 23.5 million tons, lower than eminent vegoil analyst Dorab Mistry's forecast Sunday of 25.2 million tons.

Expectations of strong demand, particularly from China and Pakistan, will likely boost CPO prices in the coming months, a second trading executive in Kuala Lumpur said. The executive expects strong support for CPO at MYR3,200/ton in the coming sessions.

In the cash market, refined palm olein for January/February/March traded at $1,067.50-$1,072.50/ton and for April/May/June at $1,055-$1,057.50/ton, free on board Malaysian ports, a physical market broker in Singapore said.

Cash CPO for prompt shipment was offered MYR60 higher at MYR3,260/ton.

Open interest on the BMD was 136,174 lots, versus 136,716 lots Tuesday. One lot is equivalent to 25 tons.

A total of 41,159 lots of CPO were traded versus 45,423 lots Tuesday.

Closing BMD CPO futures prices in MYR/ton at 1000 GMT: 
Month    Close  Previous  Change   High    Low 
Dec'11   3,260     3,184     +76  3,260  3,170 
Jan'12   3,246     3,176     +70  3,256  3,160 
Feb'12   3,242     3,178     +64  3,255  3,157 
Mar'12   3,240     3,178     +62  3,250  3,157
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