Malaysian palm oil futures rose for a third straight session on Tuesday, supported by higher crude oil and rival soybean oil prices, and concerns that drought and forest fires in top producer Indonesia may dent output.
The Bursa Malaysia Derivatives' October crude palm oil contract gained by a further 0.12% to 4,822 Malaysian ringgit ($1,192.24) per metric ton. The November contract firmed 0.18% to 4,987 ringgit/mt.
Forest fires have reportedly expanded to more than 202,000 hectares of land in Borneo and Sumatra, raising uncertainties over crop yields.
In Malaysia, current rainfall could limit the potential impact of El Nino weather phenomenon on output. While oil palms remained in seasonal production growth in August, output declined by only 0.87% month over month, according to industry association estimates, as cited by price reporting agency MySteel.
In terms of demand, narrower soybean oil-palm oil differentials weighed on Malaysia's exports in August, with cargo surveyors reportedly estimating a 6.5% to 14.9% decline in shipments compared with the previous month's levels.
Congested ports and high storage levels in top buyer India following recent heavy buying of vegetable oils could further weigh on near-term demand, according to Trading Economics.
Nonetheless, a weakening Malaysian ringgit may provide some support by making exports cheaper. The local currency eased against the US dollar by about 0.5% last week and has dipped by around 0.2% so far this week.
In Indonesia, domestic demand is set to rise with the full implementation of a higher 50% biodiesel blend, targeted by Oct. 1. Exportable supplies could also decrease as production uncertainties grow due to drought.
"Key factors to monitor going forward include the actual impact of weather conditions in Indonesian producing regions on production, the pace of B50 policy implementation, and whether Malaysian export data show signs of improvement," MySteel said.