Hopes rose that a three-year low in palm oil prices set on Monday represented a market bottom data showed Malaysia's inventories rising less than had been thought, sapped by a pick-up in exports which has continued this month.
Malaysia's palm oil inventories increased 1.1%, month on month, to 2.51m tonnes in October, setting a record high for a second successive month, the Malaysian Palm Oil Board said.
However, the growth was less than the 7.5% rise that investors had forecast – expectations of which helped send Kuala Lumpur palm oil futures down 4% to 2,220 ringgit a tonne in early deals on Monday, the lowest price since November 2009.
Supplies were sapped by a bigger-than-expected drop in production, as it past a seasonal high, at a time when exports, at 1.76m tonnes, far exceeded forecasts.
And separate data from cargo surveyor Societe Generale de Surveillance showed Malaysia's palm exports soaring 22% so far this month.
'Prices will rise'
The statistics were viewed as bullish by commentators, and indeed Kuala Lumpur's benchmark January palm oil futures contract recovered to close at 2,324 ringgit a tonne, a gain of 0.4% on the day.
"Weak prices encouraged import demand in October and the beginning of November," Rabobank said.
Malaysia palm oil data, October, change on month and (on forecast)
Production: 1.938m tonnes, -3.3%, (-21,570 tonnes)
Exports: 1.758m tonnes, +16.2%, (+72,052 tonnes)
Stocks: 2.509m tonnes, +1.1%, (-159,456 tonnes)
Source: Malaysian Palm Oil Board
Coupled with a seasonal slowdown in palm oil production, export orders were "likely to be supportive of palm oil prices in coming months.
"As palm oil production seasonally slows, higher export demand is likely to draw down stocks levels in coming months.
"We believe prices have reached their seasonal low and will rise."
Palm oil vs the world
Besides its lower absolute price – with Kuala Lumpur palm oil down 30% in 2012 at Monday's nadir – demand for the vegetable oil is being supported by its relative cheapness too.
Last month, the discount of palm oil to soyoil - interchangeable oils for many uses – reached a four-year high of $426 a tonne, and remains above $300 a tonne, well above average levels.
Palm oil remains at a discount of some $90 a tonne Brent crude, to which vegetable oils are linked through their place as feedstocks for biodiesel.
While the discount to Brent reached $158 a tonne last month, historically, palm oil has traded at the premium – and one which topped $500 a tonne at the beginning of 2011.
However, in a negative revision for palm oil prices, Indonesia, the top producer and exporter, on Friday saw its 2012-13 production prospects upgraded by 1.0m tonnes by US Department of Agriculture officials.