KUALA LUMPUR: Malaysian palm oil futures reversed early gains on Friday on profit-taking, but higher soyoil prices and concerns of lower supply in October helped the contract log a 5.6% weekly gain.

The benchmark palm oil contract for January delivery on the Bursa Malaysia Derivatives Exchange closed down 27 ringgit, or 0.84%, at 3,181 ringgit a tonne, its highest since Dec. 19, 2016.

Palm prices retreated from a more than eight-year high in the previous session, but marked a third straight weekly gain and the steepest weekly rise in four.

Malaysia's palm oil inventories likely slumped to a three-year low in October, a Reuters poll showed, as rainy weather and coronavirus curbs hit output, while exports were expected to rise.

Investors have digested the lower production forecast and are now waiting for upcoming confirmation on Indonesia's new levy structure, said Anilkumar Bagani, research head of Sunvin Group, a Mumbai-based vegetable oil broker.

Indonesia, the world's largest palm oil producer, in September said it plans to revise its palm oil export levy rules as part of moves to underpin an ambitious biodiesel programme.

The palm futures market will try to adjust itself to remain competitive with soyoil prices on the Chicago Board of Trade, where it is still trading neck-and-neck, Bagani said.

Palm prices were trading $10 below competing soyoil prices , which were down 0.7%. Dalian's most-active soyoil contract rose 1.7% and its palm oil contract gained 1.4%.

"The corrective fall in crude oil prices amid lockdowns in some EU countries may also add pressure on palm oil," Bagani added.

Crude prices fell 2%, making palm oil a less attractive option for biodiesel feedstock.