KUALA LUMPUR, Sept 6 — Malaysian palm oil inventories likely dropped in August to a more than five-year low as a strong surge in exports outpaced a smaller growth in output. 

Falling stockpiles at the world's No.2 palm oil producer after Indonesia could buoy benchmark prices of the tropical oil , which are currently near a three-week high of RM2,662 per tonne amid near-term supply worries and firm demand. 

 End-stocks in Malaysia are seen dropping to 1.60 million tonnes in August, down 9.6 per cent from July, based on a Reuters survey of nine planters, traders and analysts. 

 That would be the lowest since stocks hit 1.48 million tonnes in February 2011. 

Production is expected to rise 9.7 per cent to 1.74 million tonnes, the survey showed, the strongest since October 2015 but the weakest August level since 2013. 

While output typically hits a seasonal high in August, peak production in 2016 could be delayed as dryness linked to last year's El Nino, the strongest in 20 years, has lowered yields across Southeast Asia, the survey participants said. 

“September's output could be unchanged from August, but October looks like the month where we get the highest crops,” said a trader from a commodities trading house. 

“This year seems quite difficult in looking at crops and estimating when it is going to bear more fruit.” 

 The survey pegged palm oil exports at 1.68 million tonnes for August, up 21 per cent from 1.38 million tonnes in July. 

“Strong demand from China has boosted exports significantly ... due to stocking activity ahead of the Moon Cake festival,” said Alan Lim, a plantations analyst at MIDF Research in Kuala Lumpur. 

 Lim was referring to the Mid-Autumn festival that will be celebrated on September 15 this year, which boosts demand for palm oil in China. 

“Additionally, palm oil inventories at major ports there were below-average levels in early August,” he said, adding that China is now stocking up after waiting for prices to come down.

Overseas sales are expected to be further lifted by strong shipments to India ahead of the Diwali festival in October, the Hindu celebration which also causes a spike in palm oil demand.

India and China are the world's largest buyers of palm oil. 

The median figures from the Reuters survey imply Malaysian consumption of 253,144 tonnes in August. 

Official data will be released on September 13, according to an email by the Malaysian Palm Oil Board. — Reuters