0823 GMT - Malaysia's palm oil sector's outlook could improve as Malaysian palm oil inventories approach a cyclical peak and the lagged impact of El Nino begins to weigh on production, Public Investment Bank analyst Chong Hoe Leong says in a note. Inventories will likely peak around October before declining from November, providing a stronger basis for CPO prices to recover, he says. A stronger-than-expected El Nino could further tighten global palm oil supply, with production in Malaysia and Indonesia potentially falling 3%-8% under moderate to prolonged dry conditions, he reckons. Higher crude oil prices could also boost palm oil demand for biodiesel, while Indonesia's B50 biodiesel mandate is expected to provide additional structural support, he adds. Public IB maintains an overweight rating on Malaysia's plantation sector, pegging Sarawak Plantation and TA Ann as preferred picks.