Palm oil tumbled 3.5 percent on Monday, the sharpest since Feb. 16 last year, after top exporter Indonesia said it would temporarily remove the levy as a sharp drop in prices hit its farmers.
This could make Indonesian palm oil more competitive compared to Malaysia's, traders said.
The benchmark palm oil contract for February delivery on the Bursa Malaysia Derivatives Exchange was up 0.2 percent at 1,976 ringgit ($471.37) per tonne by the midday break on Tuesday.
Earlier in the session, it hit its lowest since August 2015 at 1,940 ringgit per tonne.
Traded volumes stood at 27,186 lots of 25 tonnes each. <1FCPO-TOT>
Palm oil prices have dropped to a level close to production costs for some plantations, said a Kuala Lumpur-based trader,adding that this might prevent some producers from selling their products.
"It is not a bullish factor, but at least it will limit some of the selling, providing some support to palm," said the trader.
However, global demand for the vegetable oil remains sluggish. So, prices are unlikely to pick up even though low prices may look attractive to some buyers, the trader added.
Shipments of Malaysian palm oil products for Nov. 1-20 fell 9.8 percent from a month earlier, cargo surveyor Societe Generale de Surveillance said on Tuesday.
Among potential supports for palm oil was Malaysia's revisions to its biodiesel content rules which will raise the minimum bio-content that local producers must put in biodiesel to be used in transport to 10 percent from 7 percent at present.
In other related oils, the Chicago soybean oil contract for December was up 0.48 percent, while the
January soybean oil contract on the Dalian Commodity Exchange was down 0.3 percent.
Meanwhile, the Dalian January palm oil contract was 1.4 percent lower.
Palm oil prices are affected by movements of other edible oils as they compete for a share in the global vegetable oils market.
Crude oil prices, which also affect the palm oil market, slumped nearly 8 percent to their lowest in more than a year on Friday, posting the seventh consecutive weekly drop, amid intensifying fears of a supply glut.