KUALA LUMPUR (Reuters) – Malaysia’s palm oil inventories by end-May dropped for the first time in three months as production fell, official data showed on Wednesday, despite surveys pegging stockpiles to rise 10%.

Inventories at the world’s second largest producer were down 0.5% from April to 2.03 million tonnes, according to data by industry regulator the Malaysian Palm Oil Board (MPOB).

“MPOB report came as a bullish surprise with lower May end-stocks, in contrast with market expectations of 2.22-2.29 million tonnes,” said Anilkumar Bagani, research head of Sunvin Group, a Mumbai-based vegetable oil broker.

Inventories were dragged down by a slip in production after growing for three months. MPOB data showed May output fell 0.09% from April to 1.65 million tonnes.

May exports surged 10.7% from April to 1.37 million tonnes, the highest in five months, signalling a recovery in demand as countries ease coronavirus restrictions.

“Higher than expected rise in exports and domestic demand against a drop in production sent stockpiles lower,” said Sathia Varqa owner and co-founder of Singapore-based Palm Oil Analytics.

The data will support palm oil prices in the short term, analysts said.

Traders expects firm demand in June as India, the world’s biggest edible oil buyer, resumes purchases from Malaysia, which is encouraging exports with a duty exemption on palm oil.

All eyes will now be on the pace of production and uncertainties over a rumoured hike in Indian duty, said Paramalingam Supramaniam, director at Selangor-based brokerage Pelindung Bestari Sdn Bhd.

India is considering raising import taxes on edible oils as the country seeks to become self-reliant by boosting local oilseed production with the help of tax revenues.