UPDATE 1-Indonesia 2017 palm oil output seen rising up to 16 pct -industry assoc

* Sees 2017 output at up to 33 mln T

* Recovering as effects of El Nino fade

* But sees prices rising before they drop (Adds comment, detail)

NUSA DUA, Indonesia, Nov 25 (Reuters) - Output of crude palm oil in world No.1 producer Indonesia could increase by up to 16 percent to between 32 million and 33 million tonnes next year, an industry group said on Friday.

That could eventually dampen benchmark prices, which touched a four-year high of 3,098 ringgit a tonne on Thursday, tracking gains in soyoil.

“In 2016, Indonesia experienced a wet dry season, which is favourable for oil production, so we expect that production will be back to its normal trend (in 2017),” said Fadhil Hasan, executive director of the Indonesian Palm Oil Association, speaking at an industry conference in Bali.

Indonesia’s production of palm oil is expected to decline to between 28.5 million and 30 million tonnes this year, down from 33 million tonnes in 2015, Hasan said.

Hasan also forecast that exports from Indonesia could grow to between 23 million and 25 million tonnes in 2017, from an expected 23 million tonnes this year.

Palm oil shipments from Indonesia stood at nearly 25 million tonnes in 2015.

Palm oil output across Southeast Asia this year has been hit by the after-effects of a crop-damaging El Nino in 2015. The weather pattern’s scorching heat crimped yields in top producers Indonesia and Malaysia.

Palm oil prices recovered in 2016 on low stocks due to El Nino, crude oil prices and biodiesel mandates in Malaysia and Indonesia, which are both looking to boost consumption of the edible oil, Hasan said.

Hasan estimated Rotterdam prices for CPO would average $670 per tonne in 2017, referring to a recovery in palm oil production, slow economic growth, a narrowing gap between palm and soyoil prices and biodiesel demand.

“(Prices) will be relatively stable by the end of this year and increase in the first half of 2017. In the second half, as the main harvest seasons arrive, prices will decline,” he said. (Reporting by Emily Chow; Writing by Fergus Jensen; Editing by Kenneth Maxwell and Joseph Radford)