KUALA LUMPUR, July 5 — Palm oil inventories in Malaysia probably expanded for the first time since November as demand for the world’s most-used vegetable oil slackened and production rebounded from the impact of a drought triggered by El Nino.

Stockpiles climbed 4.2 per cent to 1.72 million metric tonnes by the end of June from a month earlier, according to the median of eight estimates in a Bloomberg survey of planters, traders and analysts. Production of crude palm oil jumped 10 per cent to 1.49 million tonnes, picking up pace from a 4.9 per cent rise a month earlier. Exports dropped 5.5 per cent to 1.21 million tonnes, the weakest for June since 2008. The Malaysian Palm Oil Board will release official data by July 12.

Stockpiles are set to swell further as plantations enter peak production season and may weigh on futures, which tumbled 14 per cent in the second quarter, the biggest decline since September 2012. Weaker export demand alongside higher output will be negative for prices, which are seen trading between RM2,300 and RM2,600 in July, Ivy Ng, regional head of plantations at CIMB Investment Bank Bhd., wrote in a July 1 note.

Exports from Malaysia fell in June from a month earlier as the Muslim fasting month of Ramadan failed to stoke demand and importers led by India bought less, according to data from cargo surveyors. Indian purchases slumped 46 per cent to 195,105 tonnes in June, data from Societe Generale de Surveillance showed.

Higher crude palm oil production may also signal that "the worst of the El Nino impact on yields may be over,” CIMB’s Ng said. Lingering effects from the weather phenomenon showed that while higher than May, June’s output may still be 15 per cent lower than June 2015. Sime Darby, the world’s biggest oil-palm grower by acreage, expects Asian production may be slow to recover even with wetter weather as ongoing tree stress from El Nino may last for 15 months.

The contract for September delivery on Bursa Malaysia Derivatives closed at 1.8 per cent higher RM2,401 yesterday.

China

Demand for Malaysia’s exports in coming months largely depends on China, said Phang Loy Fatt, a trader at Malaysian planter Kuala Lumpur Kepong Bhd’s marketing division.

"Their palm oil stocks at ports have dwindled below 400,000 tonnes in recent weeks, below one-month’s consumption of about 600,000 tonnes,” Phang said. "There are signs that China has begun replenishing stocks which would support prices.”

China National Grain and Oils Information Center said that Chinese companies bought vegetable oils on June 30 after prices fell, including around 100,000 tonnes of palm oil for July shipment.

Palm oil’s recent price slump has made it more competitive and may help it regain market share from rival edible oils, according to Alan Lim, plantations and property analyst at MIDF Amanah Investment Bank Bhd.

Malaysian imports jumped to 30,000 tonnes in June from 20,024 tonnes in May, while estimates for domestic consumption ranged between 220,000 tonnes and 290,000 tonnes, according to the survey. — Bloomberg