Malaysian palm oil futures closed higher on Tuesday, as supply concerns due to lower output expectations boosted prices, while higher bio fuel mandates in 2020 aided sentiment. The benchmark palm oil contract, for March delivery, on the Bursa Malaysia Derivatives Exchange closed 0.6% higher at 2,923 ringgit ($706.89) per tonne. The contract had fallen as much as 0.3% earlier in the session. Palm prices have jumped over 35% so far this year, on track for their best annual performance in nearly a decade.
"Market is expecting December output to be lower by 12%-15% versus November," said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari Sdn Bhd.
Despite falling exports, lower output in December and in the first quarter of 2020 will provide support for palm prices, Supramaniam added.
Poor rainfall and lower fertiliser use in top producers Malaysian and Indonesia earlier this year are likely to curb yields of the tropical oil in the first half of 2020, according to traders and analysts.
Malaysia's palm oil exports have slowed this year, with Dec. 1-20 exports falling between 10.2% and 13.5% from a month ago, according to cargo surveyors.
However, domestic consumption is expected to increase as Malaysia, the world's second-largest producer of palm oil, plans to launch the B20 bio-diesel programme for the transport sector in phases by February next year.
Indonesia, the world's top palm oil producer, on Monday, launched bio-diesel containing 30% palm-based fuel, the highest mandatory mix in the world, in a bid to slash its fuel import bill and boost domestic palm oil consumption.
On the Dalian exchange, the most-active soyoil contract fell 0.8%, while its palm oil contract gained 0.8%. Soyoil prices on the Chicago Board of Trade fell 0.4%. Palm oil is affected by price movements in related oils as they compete for a share in the global vegetable oils market.