Malaysian palm oil futures staged a turnaround on Tuesday to notch modest gains as traders grew bullish on more pronounced forecasts of lower production. The palm oil contract for April on the Bursa Malaysia Derivatives Exchange rose 0.3 percent to 2,477 ringgit ($567.79) per tonne at the end of the trading day. It earlier fell as much as 0.5 percent.
Traded volume stood at 42,607 lots of 25 tonnes each. "Lower production in January and February is very prominent," said a palm trader in Kuala Lumpur. "By March, if prices remain where it is now, the export tax for crude palm oil will kick in. Thus, buyers will buy before that happens." Malaysia imposes a crude palm oil export tax when prices go above 2,250 ringgit per tonne. The tax starts from 4.5 percent and can reach a maximum of 8.5 percent.
Palm oil production in top producers Malaysia and Indonesia is seen taking a hit this year due to the dry weather impacts of the El Nino, which reduces fresh fruit yields and lowers crude palm oil production. Malaysian output is expected to decline marginally to 19.8 million tonnes in 2016, Thomas Mielke, editor of Hamburg-based newsletter Oil World, said at a palm oil economic review and seminar on Tuesday. He added that production from top producer Indonesia will, however, rise slightly to 34 million tonnes.
Palm oil may seek a support at 2,455 ringgit per tonne and then retest the resistance at 2,495 ringgit, said Wang Tao, Reuters market analyst for commodities and energy technicals. In competing vegetable oils, the May soybean oil contract on the Dalian Commodity Exchange rose 1.1 percent.
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