Malaysian palm oil futures reversed early losses to end 3% higher on Wednesday after an industry body forecast a bigger-than-expected drop in output and on hopes that India would reduce duties on imports of the vegetable oil.
The benchmark palm oil contract for April delivery on the Bursa Malaysia Derivatives Exchange closed up 87 ringgit, or 3%, at 2,974 ringgit. It fell 0.5% in the previous session.
"Futures recovered sharply on lower production estimates from the Malaysian Palm Oil Association (MPOA) and on market talks that India may reduce the import duties on vegetable oils in the upcoming budget," said Anilkumar Bagani, research head at Sunvin Group, a Mumbai-based vegetable oil broker.
The MPOA forecast Malaysia's Jan. 1-20 palm oil production to drop 17%, more than a 5-10% fall anticipated by the market, traders said.
However, a Kuala Lumpur-based trader said any upswing in prices will be short-lived as demand is weak.
Exports to China, the second-largest importer, have also been low ahead of the Lunar New Year holidays.
Malaysia's Jan. 1-20 palm oil exports fell between 7.4% and 9.9% from the month before, according to cargo surveyors. But a Reuters poll of industry participants expects average palm oil prices will surge 17.9% this year, as reduced output in the first half of the year and higher biodiesel consumption in top producers Indonesia and Malaysia tighten the market.