KUALA LUMPUR: Malaysian palm oil futures were set on Friday for their sharpest weekly drop in nine months, even as prices firmed after top producer Indonesia stunned the market by abandoning its export curbs in favour of a hike in export levy.

The benchmark palm oil contract for June delivery on the Bursa Malaysia Derivatives Exchange gained 31 ringgit, or 0.52%, to 5,967 ringgit ($1,420.04) a tonne by the midday break.

Palm has fallen 11% so far this week and is set to snap a three-week rally and erase most of the war risk premium accrued after Russia invaded Ukraine late last month.

Palm falls on higher output forecast, weak Dalian prices

Indonesia has significantly raised its maximum palm oil export levy to $375 per tonne when the reference price is at least $1,500 a tonne, as part of efforts to control domestic cooking oil prices after previous measures failed to tackle the problem.

The world’s biggest exporter of the edible oil had announced a day earlier a surprise policy U-turn to remove export volume restrictions on palm oil products.

“Higher Indonesian crude palm oil export levy under the revamped structure means Malaysia will continue to benefit from increased crude palm oil exports,” said Sathia Varqa, co-founder of Singapore-based Palm Oil Analytics.

Better export prospects and a recovery in the Dalian market offered some support to the market, but there was some pull-back with production set to rise in March, he said.

Oil prices extended their rally at the end of a third volatile week of trade as there was slim progress in peace talks between Russia and Ukraine, raising the spectre of tighter sanctions and a prolonged disruption to oil supply.

Stronger crude makes palm a more attractive option for biodiesel feedstock.

Dalian’s most-active soyoil contract rose 1%, while its palm oil contract fell 0.7%. Soyoil prices on the Chicago Board of Trade were up 0.4%.