Malaysia's palm oil stocks fell for the first time in four months to a four-month low in July as growth in exports outpaced improvement in production, the industry regulator said on Monday.

The fall in stocks in Malaysia, the world's second-largest palm oil producer after Indonesia, would support benchmark futures <FCPOc3>, which are trading near their lowest level in seven months.

Malaysia's palm oil stocks at the end of July fell 5.35% from the previous month to 1.73 million metric tons, the lowest since March, the Malaysian Palm Oil Board (MPOB) said.

Crude palm oil production gained 13.97% from June to 1.84 million tons, while palm oil exports rose 39.92% to 1.69 million tons, MPOB said.

A Reuters survey had forecast inventories at 1.80 million tons, with output at 1.82 million tons and exports at 1.52 million tons.

"The fall in stocks is bullish for palm oil prices as inventories have eased, defying market expectations of a slight increase. Stocks are now at the same levels as last year," said Anilkumar Bagani, research head of Mumbai-based Sunvin Group.

However, a sharp rise in palm oil prices is unlikely as the market anticipates strong production in August amid lower exports, said a New Delhi-based dealer with a global trade house.

Exports of Malaysian palm oil products for Aug. 1-10 fell 17.7% to 435,413 tons.    

"Even after the recent drop in prices, palm oil's discount to rival soyoil and sunoil is still far lower than normal. It needs to correct further, or rival oils need to increase in price to make palm oil more attractive," the dealer said.