Heavy rains have dealt Malaysia is biggest drop in palm oil since at least 2006, in what is typically the peak month for production, prompting a surprise reduction in inventories.

Output in the world's second-biggest palm producer, after Indonesia, plunged by 19.6% in November from October's multi-year high, official data showed.

The slump, to 1.60m tonnes, beat an 11% slide in February 2007, the biggest tumble of the last two years, before which Malaysian Palm Oil Board data is not readily available.

It follows heavy monsoon rain which has prompted Malaysian authorities to issue a series of weather alerts, and has disrupted harvesting and transportation of palm crops and products to refineries and ports.

Severe rains also tend to cut the oil yields in palm fruit.

Surprise fall

With exports rising to their highest this year, up 1.5% month-on-month to 1.50m tonnes, output was unable to meet both foreign and domestic demand.

Inventories dropped 2.0% to 1.93m tonnes, the first decline in five months, defying analysts' expectations of a rise, the MPOB data showed.

The market had forecast a 2.8% rise in stocks to 2.03 tonnes.

Market reaction 

However, expectations of a strong bounce in palm prices were dented by data showing a fallback in Malaysian exports for the first 10 days of December, when they often enjoy a Christmas boost.

Traders also cited the prospect of a key US global crop supply and demand report due later, which will hold key data on soyoil, palm oil's main competitor.

Benchmark February palm oil closed down 5 ringgit at 2,521 ringgit a tonne in Kuala Lumpur, if well above a low of 2,489 ringgit a tonne hit before the MPOB data were released.