Battered palm oil prices managed a positive close, underpinned by talk of government action to support the market, despite data showing Malaysia's inventories had set a record even more convincingly than investors had expected.

Malaysia's palm oil stocks soared 17.4% last month to an all-time high of 2.48m tonnes, a rise even stronger than analysts had expected, data from the Malaysian Palm Oil Board, the official regulator, showed.

The increase reflected both a bigger-than-forecast rise in output, to 2.00m tonnes, and a weaker-than-expected increase in export demand, with shipments reaching 1.51m tonnes.

And data from cargo surveyors showed a drop in Malaysian palm exports so far this month, although Societe Generale de Surveillance, pegging the drop at 8.7%, and Intertek, at 1%, disagreed over the extent of the decline.

However large the drop, it showed that "right now, there is no evidence" of a slump of more than 20% in prices from a late-August high to a three-year low last week stimulating demand from importers, Rabobank commodity analyst Erin FitzPatrick said.

Production curbs?

Nonetheless, Kuala Lumpur's benchmark palm oil futures contract recovered early losses to end 0.8% higher at 2,457 ringgit a tonne.

Furthermore, Bernard Dompok, Malaysia's plantations industries and commodities minister, who met his Indonesian peer on Monday, signalled joint action from by countries to underpin prices.

While failing to specify measures being considered, Mr Dompok's comments have raised hopes of measures to tackle the rise in supply as well as demand, with talk of measures such as encouraging tree replantings, so reducing temporarily the extent of productive plantations.

Palm oil futures "regained strength on the positive note that Malaysia and Indonesia will try to limit production as measure to boost prices", Ker Chung Yang, at Singapore-based broker Phillip Futures, said.

Price outlook

The rise in Malaysian palm production reflected a rise in oil yield to 0.41 tonnes per hectare, the highest since 2009, and representing the first time this year that the result has risen above five-year average levels, according to Rabobank.

Meanwhile, demand is set to "remain lacklustre" thanks to an improved outlook for oilseed production in India, a major palm importer, and "uncertainty" over growth in Europe's biodiesel industry, amid an anti-dumping probe and question marks over double counting allowances.

Palm oil prices look set to "remain under pressure", Ms FitzPatrick said, adding that she was "now pessimistic" over values recovering to the average of 2,800 ringgit a tonne in this quarter, 3,000 a tonne in the first three months of 2013 and 3,100 ringgit a tonne in the April-to-June period that the bank has forecast.