Malaysia's crude palm oil futures ended off a four-month low on Thursday although weak technicals and expectations of strong production continued to weigh. Palm oil, which has lost around 15 percent so far this year, could decline further as the market is pricing in output recovery in Malaysia after two years of sluggish yields owing to erratic weather.
And weak exports are underscoring concerns that the global economic recovery may be faltering with quake-hit Japan's unfolding nuclear crisis and civil unrest in the Middle East. "The palm oil market was oversold in the morning and shorts have started to cover back," said a trader with a foreign commodities brokerage in Kuala Lumpur.
"They realised that the other markets are not sharply falling in the same way and there is view that crude oil above $100 a barrel will support palm oil."
Benchmark June palm oil on the Bursa Malaysia Derivatives Exchange fell as much as 4.3 percent, or 143 ringgit to 3,163 ringgit ($1,045), a level unseen since November 24, 2010, before settling higher at 3,270 ringgit.
Overall trade volumes stood at 45,341 lots at 25 tonnes each, more than triple the usual 15,000 lots.
A few private production reports are pointing to double digit growth in March. The Malaysian Palm Oil Association reported output rising 16 percent in the first half of March.
Some millers are suggesting palm oil output in Malaysia's southern Johor state may have jumped 24 percent in the first 20 days of March, as oil palms also move into a higher production cycle. Johor makes up 30 percent of national monthly output.
Higher production comes as exports from Malaysia continue to lag. The next indicator for demand will be when cargo surveyors Intertek Testing Services and Societe General de Surveillance issue Malaysia's March 1-25 palm oil exports on Friday.
Traders are expecting exports for that period to be around 900,000 tonnes, some six percent lower than a month ago. Oil rose on Thursday, as concerns about instability in the Middle East outweighed worries about the economic health of the eurozone following the resignation of Portugal's prime minister.
Other vegetable oil markets were mixed. US soyoil for May delivery was flat in late Asian trade on investor caution ahead of the US plantings report on March 31 that may show more acreage going to corn.
China's most active September 2011 soyoil fell 1.5 percent although traders expect the US plantings report to support prices. "The room to fall is limited on expectation over decreasing soybean planting areas in the US which could cap global supply," said Ju Zhou Jun, an oil analyst with Galaxy Futures in Beijing.