MUMBAI :Malaysia's palm oil stocks are expected to decline in the coming months, ending the year at around 1.7 million metric tons, as a seasonal slowdown in production coincides with rising exports to meet festive season demand, the industry regulator said.

The expected drop in inventories in the world's second-largest palm oil producer after Indonesia could support benchmark futures, which are under pressure recently because of cheaper supplies of rival soyoil.

"Production is slowly coming down, and we expect exports to rise in the coming months on festive season demand," Ahmad Parveez Ghulam Kadir, director-general at the Malaysian Palm Oil Board (MPOB), said on Monday.

Malaysian palm oil production typically tapers off towards year-end following a strong September quarter. Palm oil stocks in Malaysia rose 4.18 per cent on-month in August to 2.2 million tons, the highest since December 2023, data from the MPOB showed.

Palm oil prices have been under pressure in recent weeks as a sharp drop in soy oil prices made it costlier. This prompted top palm oil buyer India to boost soy oil purchases for the coming months.

Despite this, palm oil prices are likely to remain firm in the coming months due to uncertainties over Indonesian supplies, Kadir said.

Exports from Indonesia could be affected by a proposed implementation of the B50 biodiesel programme and government seizures of oil palm plantations, he said.

Indonesia currently mandates a 40 per cent palm oil content in biodiesel and plans to raise it to 50 per cent starting next year.

Indonesia handed over 674,178 hectares (1.7 million acres) of palm oil plantations to state firm Agrinas Palma Nusantara earlier this month, taking the total area of land given to the company to 1.5 million hectares (3.7 million acres).

Oil palm replanting in Malaysia is progressing slowly, and to accelerate it, the MPOB has urged the government to raise the allocation to 280 million ringgit for 2026, up from 100 million ringgit this year, he said.

Malaysia's palm oil stocks to drop as output slows and exports rise