KUALA LUMPUR: Malaysia's palm oil stockpile at the end of July likely expanded to its highest in 10 months, as a drop in exports offset a decline in production, a Reuters survey showed on Thursday.

       Inventories in the world's second-largest palm oil producer are seen rising for a fifth month, up 1.6% to 1.64 million tonnes from June, according to the median estimate of nine planters, traders and analysts polled by Reuters.

       Production is pegged to fall for the first time in five months, defying hopes for stronger output amid the peak production months. Output is seen shrinking 4% to 1.54 million tonnes, its lowest since April.

       "We reasoned that the crop especially in Sabah (state) has shown some unusual behaviour as the fruits are simply not plentiful," said Lee Toong Huang, General Manager of Kwantas Oil, adding that a labour shortage also contributed to the lower production numbers.

       Exports are forecast to decline 4.2% to 1.36 million tonnes, after cargo surveyors reported a large decline in shipments to the world's largest palm oil buyer, India, which is turning to cheaper exports from Indonesia.

       Indian importers typically stock up on the tropical oil months ahead of the annual Diwali festival, this year in November, when consumption jumps.

       "At current price levels, most of the Diwali intake by late August-September will switch to the Indonesian side," said Marcello Cultrera, institutional sales manager and broker at Phillip Futures in Kuala Lumpur.

       The Indonesian duty and levy structure for August is more competitive than Malaysia for crude palm oil and refined products due to higher supply in Indonesia over the past two months and its better pricing, Cultrera said.

       The Malaysian Palm Oil Board will release the official data on Aug 11.

       Based on the median of exports and closing stocks estimate, Malaysia's domestic consumption July is estimated to be 248,397 tonnes. - Reuters