Malaysian palm oil futures rose on Tuesday as expectations of lower production and a weaker ringgit underpinned prices, shrugging off an announcement of a 5 percent tax on crude palm oil (CPO) exports that could hurt demand.
A government circular on the Malaysian Palm Oil Board website showed a CPO export tax will be implemented in April, ending a duty-free policy held since May 2015.
"The tax was expected, the market rose more on weather concerns and the weak ringgit," said a trader from Kuala Lumpur, adding that positive export numbers were also buoying prices.
The palm oil contract for May delivery on the Bursa Malaysia Derivatives Exchange was up 0.7 percent at 2,611 ringgit ($632) per tonne at the close of trade. Trade volumes stood at 42,345 lots of 25 tonnes each in the trading day.
The contract touched a one-month high of 2,632 ringgit on Monday.
Palm oil prices are expected to climb to 2,700-3,000 ringgit by June as dryness linked to El Nino hurts production, industry experts said last week. They see global output falling by 2 million-3 million tonnes in 2016.
Also, palm oil prices are drawing support from Intertek Testing Services data showing a 10.5 percent month-on-month rise in exports for the first half of March.
Societe Generale de Surveillance, however, reported a 1.1 percent export decline over the same time period.
A weaker ringgit, the currency palm oil is traded in, is also helping drive demand by making the vegetable oil cheaper for holders of other currencies. The ringgit was down 0.8 percent at 4.1320 to the US dollar in the evening.
In competing vegetable oil markets, May soybean oil on the Dalian Commodity Exchange lost 1.1 percent, while the Chicago soyoil contract fell 0.3 percent.
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