Palm oil prices slipped more than 2% after official data showed a slump in exports driving Malaysian inventories of the vegetable oil to their highest for 13-months.

Stocks hit 2.24m tonnes in December, up 15.7% month on month, surprising traders who had expected inventories in the world's second-ranked producer of the vegetable oil to stay around November's level of 1.93m tones.

The immediate market reaction to the Malaysian Palm Oil Board data was to send Kuala Lumpur's benchmark March contract down 2.1% to 2,572 ringgit a tonne, its lowest since Christmas Eve.

Demand falls 

The jump in palm inventories reflected a 19.5% slide in palm oil exports for a month which is often the strongest for shipments.

And separate data showed the decline continuing into this month. Societe Generale de Surveillance said that Malaysia's palm exports were 13.3% lower in the first 10 days of January than a month before, with rival Intertek Testing Services putting the fall at 14.6%.

Both cargo surveyors noted steep declines in shipments to the key Chinese and European Union markets.

Exports to China slumped by 60% to 51,150 tonnes according to SGS, despite the prospect of new year celebrations next month in which traders have placed high hopes as an stimulus for demand.

Production forecast 

Palm production eased 4.7% to 1.52m tonnes at the start of what is typically a weak period for output.

And, with the MPOB forecasting that the El Nino weather pattern will hold back production this year, and with prices of soyoil, palm oil's major rival, rising 1.0% on China's Dalian exchange, prices staged some recovery.

March palm oil closed down 1.6% lower at 2,585 ringgit a tonne in Kuala Lumpur.