Malaysian palm oil futures retreated on Monday as investors took profits after last week's sharp gains, although concerns that production and stockpiles in early 2020 would be lower kept a floor under prices.
The benchmark palm oil contract for March delivery on the Bursa Malaysia Derivatives Exchange was down 6 ringgit, or 0.21%, at 2,906 ringgit ($701.59) by the midday break, after adding more than 2% last week.
Palm prices have jumped over 35% so far this year, hitting their highest since Feburary 2017 on Dec. 11, after two years of losses.
Analysts said trading is expected to be sluggish in the week ahead as the market eases into the holiday season.
"Palm prices were weaker on some profit taking after strong upside last week," a Kuala Lumpur-based trader said.
The market is trying to adjust to expectations of reinstatement of taxes on crude palm oil exports from top producers Indonesia and Malaysia and implementation of higher biodiesel mandates, said Anilkumar Bagani, research head at Sunvin Group, a Mumbai-based vegetable oil broker.
Malaysia raised its export tax for crude palm oil for January, for the first time in one-and-a-half years, the Malaysian Palm Oil Board said last week. Indonesia is expected to follow suit.
Domestic consumption is expected to increase as Malaysia, the world's second-largest producer of palm oil, plans to launch the B20 bio-diesel programme for the transport sector in phases by February next year.
Indonesia, the world's top palm oil producer, on Monday launched biodiesel containing 30% palm-based fuel, the highest mandatory mix in the world, in a bid to slash its fuel import bill and boost domestic palm oil consumption.
Poor rainfall and lower fertiliser use in top producers Indonesia and Malaysia earlier this year are likely to curb yields of the tropical oil in the first half of 2020, according to traders and analysts.
Malaysia expects the country's palm oil stocks to end the year at 2.1 million tonnes or remain at the current level of 2.25 million tonnes, according to the state news agency Bernama.
Malaysia's palm oil exports during Dec. 1-20 fell between 10.2% and 13.5% from a month earlier, according to cargo surveyors. Dalian's most-active soyoil contract traded down 0.9%, while its palm oil contract gained 0.3%.
Soyoil prices on the Chicago Board of Trade dropped 0.1%.
Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.
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