RTRS- Malaysia's June palm stocks seen at 14-month low

SINGAPORE, July 6 (Reuters) - Malaysia's palm oil stocks likely dropped to a 14-month low in June, as exports and local demand offset a rise in production, a Reuters median survey showed on Friday.

Stocks in the world's No.2 producer of the vegetable oil probably fell 2.2 percent to 1.73 million tonnes, the lowest since April 2011, the survey of six plantation houses showed, potentially supporting benchmark palm oil futures.

Malaysia most likely exported 1.46 million tonnes of the tropical oil in June, up 4.3 percent from a month ago and the highest this year so far as the Asian festival season begins with the Muslim holy month of Ramadan where fasting in the day is followed by feasts at night.

India, Pakistan and the Middle East were seen stocking up ahead of the fasting month Ramadan that begins in the third week of July.

Ramadan ends with Eid al-Fitr celebrations in August and is followed soon after by China's Mid-Autumn festival in September and India's Hindu festival of Diwali in November, boosting exports in the months to come.

When combining Malaysia's exports to domestic consumption of 170,120 tonnes in June, overall demand trumped total output that probably grew 7.7 percent from May to 1.49 million tonnes.

Production improved on a favourable crop weather but is still way below 1.75 million tonnes last year, keeping stocks low, said one of the survey respondents.

Imports of crude palm oil from top producer Indonesia were expected to reach 100,000 tonnes from previous month's 40,690 tonnes, as refiners expect strong demand in coming weeks.

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Exports most likely are going to rise in July , as hot and dry weather in the U.S. Midwest that squeezed global oilseed supplies is expected to shift more demand to the cheaper palm oil.

A slew of festivals beginning with Ramadan may boost exports and weigh on stocks, unless production picks up and makes up for the shortfall.

But planters will be watching out for El Nino, which brings hot and dry weather to Southeast Asia that could sap oil palm yields at a time when demand is on the rise.

Indonesia lowered its refined palm oil tax to 7 percent in July from a month ago, and is expected to capture a larger share of the increased demand for the edible oil.

The top producer's crude palm oil exports might grow thanks to a lower tax rate at 15 percent in July, which will attract orders from Malaysia that faces a shortage in supply.
MARKET REACTION:

The benchmark third-month palm oil futures FCPOc3 contract on the Bursa Malaysia Derivatives Exchange hit its lowest in 2012 in June at 2,839 ringgit ($898), as the euro zone debt crisis triggered a flight of capital from riskier assets.

Futures have been steadily recovering since on expectations that persistent dry and hot weather in U.S. Midwest soy crops will shift demand to palm oil.