KUALA LUMPUR— Malaysian crude palm oil demand is expected to pick up ahead of the export tax resumption as overseas buyers stock up before the zero-duty period ends in early April.

The world’s second-largest palm oil producer set its April crude palm oil export tax at 5.0%, after a three-month duty suspension implemented at the start of the year, a government circular showed on Thursday.

Although demand is likely to ease when the tax kicks in, Malaysian palm oil benchmark prices are expected to see some support in the short term. The contract rose to a two-week top in early trade on Thursday and was last up 0.2% at 2,452 ringgit.

“In the short term, this could prompt buyers to buy more ahead of the tax resumption,” said David Ng, a derivatives specialist at Phillip Futures.

“However, in the medium term, we could see slower demand as buyers shift to Indonesia.”

Key buyers such as India and China are price sensitive markets and tend to favor Indonesian palm oil as its prices are typically lower after factoring in Malaysia’s export tax.

Malaysia calculated a palm oil reference price of 2,474.63 ringgit ($633.38) per ton for April. A price above 2,250 ringgit incurs a tax.

The Southeast Asian nation in early January had suspended its export tax on crude palm oil for three months to increase demand and boost prices, as it expected stockpiles to grow in 2018.

Inventories had surged to an over two-year high of 2.7 million tons at end-December. While stocks have since eased, output is also set to rise in the coming months in line with seasonal gains.

The export tax suspension will end on April 7. — Reuters