KUALA LUMPUR: Malaysia palm oil futures ticked up on Thursday, supported by an estimated drop in production this year, but gains were capped by expectations that output would recover next year.
Benchmark palm oil futures for March delivery on the Bursa Malaysia Derivatives Exchange rose 0.3 percent to 3,122 ringgit ($697.81) per tonne by the midday break.
Traded volumes stood at 10,196 lots of 25 tonnes each.
"There is lack of participation ahead of the long weekend," said one Kuala-Lumpur based trader. Bursa Malaysia is closed next Monday for Christmas.
"Perhaps some negative sentiment in production supporting the market," the trader said.
Earlier this week, the Indonesian Oil Palm Research Institute said it expects 2016 palm oil output at the top producer to drop 2.26 percent from last year due to dry conditions related to an El Nino weather pattern.
Output at second biggest producer Malaysia is also expected to be hit by the crop-damaging El Nino, which typically brings drought across Southeast Asia and impacts palm oil fruit yields.
Production in both countries is expected to recover in 2017 and could add pressure on prices, analysts have said.
Palm oil targets 3,045 ringgit per tonne, as suggested by a Fibonacci retracement analysis, Reuters technical analyst Wang Tao said.
Palm prices had dipped earlier this week on poor export data from Malaysia. Last week, they rose to a 4-1/2 year high, supported by a weak ringgit.
A weaker ringgit makes palm oil cheaper for holders of foreign currencies.
In other related vegetable oils, the January soybean oil contract on the CBOT dropped 0.6 percent.
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