12/07/2010 (Commodity Online) - Palm oil stocks in Malaysia tumbled to 10 month lows in June as exports surprisingly outpaced a weaker-than-expected recovery in production.

According Malaysian Palm Oil Board, June stocks in the world’s No.2 producer tumbled 7.1 percent to 1.45 million tonnes from a month ago, going against market estimates for a rise and setting the stage for a price rally.

The benchmark September contract on the Bursa Malaysia Derivatives Exchange rose 1 per cent to RM2,324 by the midday break and ahead of the data release and also hit a one-week high at 2,326 ringgit.

Production rose 2.5 per cent to 1.42 million tonnes in June, unexpectedly lower than market estimates for a six percent, as yields from key oil palm growing region of Sabah on Borneo Island were still lagging.

El Nino-driven drier weather in early 2010 prolonged yield stress for oil palms after seasonally higher production in the last quarter of 2009.

June exports rose 1.44 million tonnes from May as India and China, the world’s top palm oil buyers, started taking up more cargoes as prices declined slightly in June.