28/09/2010 (Bloomberg) - Palm oil dropped, slipping from yesterday’s 16-month high, on concern that a seasonal boost in output may expand stockpiles for a second month in September.

December-delivery palm oil dropped as much as 0.6 percent to 2,718 ringgit ($880) a metric ton on the Malaysia Derivatives Exchange, before pausing at 2,726 ringgit at the 12:30 p.m. trading break in Kuala Lumpur.

“Near-term, crude palm oil prices should be trending slightly lower to the 2,600-ringgit level,” Arhnue Tan, a senior analyst at ECM Libra Capital Sdn., said today. “Stock levels are expected to pick up come October as the peak- production cycle is in tow.”

Palm oil advanced for four straight weeks and closed at 2,735 ringgit yesterday, the highest since May 13, 2009, as demand rose ahead of festivals and excess rain hurt harvests, causing stockpiles to fall in the seven months through July.

Malaysian inventories climbed in August, jumping 23 percent to 1.72 million tons from July, as production gained for a fourth month, the country’s palm oil board said Sept. 15.

Golden Agri-Resources Ltd., an Indonesian planter listed in Singapore, is seeing signs of increased seasonal production, said a CIMB Research Pte. report today, after a company visit.

Stockpiles are likely to grow as increased supply coincides with diminishing demand as major festivals in China and Indonesia end. China, the largest user of edible oils, marked the mid-autumn festival last week and will celebrate National Day in the week starting Oct. 1.

Indonesia, with the largest Muslim population, had its biggest Islamic holiday earlier this month, which traditionally spurs demand.

CME Group Inc.’s December palm oil contract, which is pegged to the Malaysian benchmark price, was unchanged at $883 a ton. On the Dalian Commodity Exchange, May-delivery palm oil lost 0.2 percent to 7,778 yuan ($1,164) at the 11:30 a.m. trading break.