KUALA LUMPUR: Malaysia’s palm oil inventories at end-December likely shrank to the lowest in four months as production and exports slowed, a Reuters survey showed on Thursday.

Stockpiles fell 5.3% from the month before to 2.17 million tonnes, the lowest since August, according to the median estimate of nine traders and analysts polled by Reuters.

Output fell for a second consecutive month as tropical storms and heavy flooding disrupted harvesting and hit supply lines across the world’s second-largest producer.

Production declined 3% from November to 1.63 million tonnes, the smallest since July.

Exports also fell 1% to 1.5 million tonnes, with cargo surveyors indicating a slump in shipments to key market China.

Demand from China has declined in recent years due to strict COVID-19 containment measures, but consumption is expected to slowly recover this year as Beijing shifts away from its stringent policies.

However, raging COVID-19 infections in the world’s most populous nation have raised doubts of a recovery in the near term.

Palm oil scales near 5-week closing high on supply outlook

Meanwhile, Indonesia’s move to limit export volumes and increase the use of palm oil as biofuels domestically will tighten global supplies and support prices.

A Kuala Lumpur-based analyst said in January traders will be eyeing Chinese New Year demand and improvements in Malaysia production, the development of South American soybean planting.

The Malaysian Palm Oil Board (MPOB) is scheduled to release its data on January 10.