KUALA LUMPUR: Malaysian palm oil futures reversed earlier losses and closed flat on Wednesday, as output from the second biggest palm producer is set to fall while global demand is expected to improve slightly.

The benchmark palm oil contract for June delivery on the Bursa Malaysia Derivatives Exchange closed at 3,930 ringgit ($951.80) per tonne, unchanged from the previous session, after falling to as low as 3,862 ringgit earlier.

The contract reversed its losses after better global palm oil consumption demand forecasts by leading analysts coincided with expectations that supply from Malaysia would continue to fall.

Palm oil inventories at the world's biggest grower Indonesia are also expected to shrink by almost half to 2.67 million tonnes by the end of 2021 as a rise in demand is seen outpacing production, the Indonesian Palm Oil Association said.

Meanwhile, the ringgit, palm's currency of trade, fell 0.2% against the dollar, making the commodity cheaper for holders of foreign currency.

Oil prices edged higher as investors looked for bargains following the previous day's plunge, making palm a more attractive option for biodiesel feedstock.

Dalian's most-active soyoil contract gained 0.6%, while its palm oil contract rose 0.3%. Soyoil prices on the Chicago Board of Trade fell 0.6%.

Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.