KUALA LUMPUR, Oct 6 — Malaysia’s palm oil stockpiles likely grew in September from a near six-year low the previous month, expanding on rising production and a drop in demand for exports.

Increasing stocks in the world’s No.2 producer of the tropical oil could drag on benchmark prices that have already fallen 7 per cent from five-month highs hit in late-September.

Palm, used in everything from chocolate to cosmetics and biofuels, was at RM2,541 per tonne during the midday break today.

Inventories are expected to have risen 3.1 per cent in September to 1.51 million tonnes, according to a Reuters poll of eight planters, traders and analysts. That would mark the first gain in stockpiles since June.

The rise in stocks comes as palm oil production is forecast to climb 4 per cent from August to 1.77 million tonnes.

That would be its highest level since last October, but its weakest September performance since 2010.

“We’re looking at Malaysian production to peak in October-November, as the drought seems to have delayed peak production months from August-September to later in the year,” said Voon Yee Ping, plantations analyst from Kenanga Research, referring to dry conditions from the El Nino weather pattern.

The crop damaging El Nino brings scorching heat across South-east Asia, impacting palm yields in the world’s top two producers Malaysia and Indonesia.

September exports are seen falling to 1.53 million tonnes, down 15.5 per cent from a record 1.81 million tonnes the month before.

Demand in September slowed from August’s record-high, said a trader from Kuala Lumpur, while October exports are expected to weaken further.

“Deepavali buying is all done, so exports in ... October should be poor,” he said. The Hindu festival of Deepavali, widely celebrated in top palm consumer India, falls in late October.

The trader added that benchmark prices would not decline sharply as stockpiles should remain around 1.50 million tonnes at year-end. Leading analysts forecast contrasting movements in palm prices for the final quarter of the year.

Thomas Mielke, editor of newsletter Oil World, sees them reaching RM3,000, while Dorab Mistry, director of Godrej International, predicts a fall to RM2,200.

The median figures from the Reuters survey imply Malaysian consumption of 205,491 tonnes in September.

The Malaysian Palm Oil Board will release official data on October 10. — Reuters