Malaysian palm oil futures posted modest gains on Tuesday, driven by escalating supply concerns linked to severe flooding in peninsular Malaysia and a significant increase in Indonesia’s export tax and levy. However, an anticipated dip in November exports tempered the upward momentum.

The benchmark February contract on the Bursa Malaysia Derivatives Exchange rose by 32 ringgit, or 0.65%, to 4,987 ringgit ($1,116.16) per metric ton by midday. This gain came in the wake of persistent supply disruptions and policy shifts that have reverberated through the palm oil market.

Flooding across peninsular Malaysia, which officials have warned could be the most severe in a decade, has added uncertainty to the palm oil sector. The disaster has not only displaced communities but also raised concerns about potential disruptions to palm oil production in key growing regions. With much of the area’s infrastructure and plantations impacted, traders fear a prolonged slump in output, further tightening global supply.

The move is designed to curb domestic shortages and support domestic prices, but it also impacts the global palm oil market by reducing the competitiveness of Indonesian exports. As a result, prices across the region have been supported, with Malaysia seeing spillover effects as traders anticipate reduced palm oil availability.

Despite these bullish factors, market sentiment was tempered by expectations of a decline in Malaysian exports. Estimates from cargo surveyors Intertek Testing Services and AmSpec Agri Malaysia suggest a decrease in Malaysian palm oil exports by between 9.3% and 10.4% for November. The potential drop in exports, attributed to slower demand from key markets, is expected to weigh on price momentum in the short term. Traders remain wary that lower export volumes, coupled with rising production costs, could lead to a buildup of stocks, particularly in the December and January period.

One Kuala Lumpur-based trader noted that while current high prices may offer short-term relief, they risk deterring buyers in key importing nations, particularly as demand for palm oil from top buyers such as India and China slows due to elevated prices.

The global edible oils market showed mixed signals. In the Dalian market, China’s most-active soyoil contract fell around 1.70%, while palm oil futures rose by a margin around 0.077%. At the Chicago Board of Trade, soyoil prices dropped around 0.40%. The interconnection between palm oil and its edible oil counterparts remains evident, as palm oil competes for market share in the global vegetable oil sector.

As the palm oil market navigates through these complex dynamics—driven by climatic events, shifting policies, and market demand—industry participants are bracing for a volatile yet opportunistic outlook in the near term.