KUALA LUMPUR, Jan 6 — Malaysia's palm oil inventories likely dropped in December for the first time in four months, as a sharp decline in production outpaced a slower fall in exports.

Lower stocks in the world's No. 2 producer of the edible oil, used in everything from chocolate to biofuels, could stoke momentum in benchmark prices that hit a 4-1/2 year high in December on a weaker ringgit and tighter supply.

Palm opened at RM3,095 ringgit a tonne today, down slightly from the day before.

Malaysia's December stockpiles are seen falling three per cent to 1.61 million tonnes from November, the first monthly decline since August, according to the median of forecasts from nine planters, traders and analysts polled by Reuters.

That would also mark the lowest December levels since 2010.

The drop comes as output is seen falling eight per cent to its weakest in seven months at 1.45 million tonnes, hit by the lingering after-effects of an El Nino weather pattern that brought dry conditions to many parts of South-east Asia in 2015 and early 2016. That would be the sharpest monthly decline since January 2016.

"The trees are seeing male flowers due to the effects of drought. We could still see bad production for the next two to three months,” said a palm oil trader in Kuala Lumpur, declining to be identified as he was not authorised to speak with media.

Female palm flowers are the type that turn into a cluster of fruit.

The survey's production estimate of 1.45 million tonnes would peg Malaysia's 2016 output at 17.3 million tonnes. That would be down seven per cent from 18.6 million tonnes in 2015 and the lowest annual level since 2010, largely due to El Nino.

The survey also showed Malaysian palm oil shipments falling for a fourth straight month in December, with northern hemisphere demand typically easing in winter. Exports are seen dropping 3.8 per cent from November to 1.32 million tonnes, the weakest since June.

Exports to China could pick up slightly this month ahead of Lunar New Year celebrations, but first quarter demand will be weak overall, said Voon Yee Ping, plantations analyst at Kenanga Investment Bank.

The median figures from the Reuters survey imply Malaysian consumption of 228,997 tonnes in December. Official data will be released on Jan 10 by the Malaysian Palm Oil Board. — Reuters