KUALA LUMPUR: Malaysian palm oil futures dropped 3.5% on Wednesday after the second-largest producer raised its export tax reference price, while weaker global edible oils and crude prices further weighed on sentiment.

The benchmark palm oil contract for August delivery on the Bursa Malaysia Derivatives Exchange closed down 157 ringgit, or 3.52%, at 4,300 ringgit ($1,039.65) a tonne, its biggest one-day percentage fall in seven weeks.

The contract had fallen as much as 4.2% in early trade.

"Prices took a steep fall today, in unison with the negative close in Chicago Board of Trade," said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari.

End-stocks are likely to be "extremely tight" in May due to higher exports and a slower pace of production, he said.

Malaysia has kept its June export tax for crude palm oil at 8% but raised it reference price to 4,627.40 ringgit per tonne, the Malaysian Palm Oil Board said.

Soyoil prices on the Chicago Board of Trade were down 1%. Dalian's most-active soyoil contract fell 0.9%, while its palm oil contract also declined 0.2%.

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

Oil prices fell for a second day on renewed demand concerns as coronavirus cases in Asia rise and on fears rising inflation might lead the US Federal Reserve to raise interest rates, which could limit economic growth.

Weaker crude oil futures make palm a less attractive option for biodiesel feedstock.