(Thurs 04/09/14 19:47:57)

KUALA LUMPUR (Sept 04): Malaysia said on Thursday that it will exempt crude palm oil from export taxes in September and October in a move to reduce swelling stockpiles of the tropical oil after a recent price slump and as supply outstrips demand.

The exemption from export duties, which had been set at 4.5 percent for September, is expected to increase palm oil exports by 600,000 tonnes over the two months and reduce stock levels to 1.6 million tonnes by the end of the year, the commodities ministry said in a statement.

Malaysian palm prices, which set the tone for global prices, plunged 14.5 percent in August, the biggest monthly fall since September 2012, hurt by expectations of bumper crops of competing oilseeds as well as a pick-up in Southeast Asian palm output.

Stockpiles in Malaysia, the world's No.2 producer of the tropical oil, stood at 1.68 million tonnes at the end of July, but are expected to hit a seven-month high at end-August as production outstrips global demand from key consumers.

"If there is no action to address this trend, we are expecting further declining price until the end of the year with average price between 2,200-2,280 ringgit ($692.5-$717.7) per tonne," the ministry said in the statement.

Both Malaysia and neighbour Indonesia, the world's biggest palm oil producer, set export taxes on a monthly basis. Prior to the announcement, Malaysia's export duty for the crude grade of palm oil was set at 4.5 percent for September, down from 5.0 percent in August, while Indonesia set its rate at 9 percent compared to 10.5 percent in August.

Malaysian palm oil rose for a third consecutive session on Thursday to a one-week high, after the market slid to its lowest since 2009 earlier this week. Refiners stepped up crude oil buying after prices fell below 2,000 ringgit a tonne, lifting palm oil futures up 5 percent so far this week.

Shipments of Malaysian palm oil products fell 4.8 percent from a month earlier to 1,288,117 tonnes in August, cargo surveyor Intertek Testing Services said on Tuesday, but recovered from steeper losses earlier in the month as a surge in demand from India offset weaker imports by China and Europe.

($1 = 3.1770 Malaysian ringgit)