KUALA LUMPUR, Nov 12 (Reuters) - Malaysia's October palm oil stocks hit record levels but were below market expectations, signalling a slowdown in inventory build up is imminent and potentially supporting prices.
Industry regulator the Malaysian Palm Oil Board said on Monday that stocks in the world's No 2 producer of the edible oil rose 1.1 percent to a record 2,508,644 tonnes as output stayed higher than exports despite a slight decrease in yields.
October's muted rise missed market expectations that stocks likely climbed 7.5 percent to 2.67 million tonnes, leaving traders scrambling at the midday break to key in orders before the futures market re-opens in the afternoon.
"It is very bullish. Nobody expected this figure. Nobody. We were expecting a bigger glut than usual in stocks," said a trader with a foreign commodities brokerage. "We expect the market now to recoup some its steep losses earlier in the day."
Palm oil futures tumbled 4 percent to the lowest in three years, tracking steep drops in U.S. soybeans after a larger-than-expected production forecast from the U.S. Department of Agriculture.
Palm oil stocks are still large and will add to rising global edible oil supplies, although traders say the muted increase gives them a chance to come back into market.
October production unexpectedly fell 3.3 percent to 1.94 million tonnes from 2 million tonnes a month ago as yields weakened in peninsula Malaysia and Sarawak after months of strong growth.
"Production might go either way. Oil palm trees are taking a mini-breather in October before producing more again or this is the start of a low cycle again," said a plantation official.
"Also, it is the rainy season again. Harvesting rounds, and therefore production might get disrupted."
Exports on the other hand jumped 16.2 percent to 1.75 million tonnes, MPOB data showed, driven by demand from China and other Asian consumers restocking ahead of the Lunar New Year holidays in February 2013.
