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Malaysian refiners snapped up more Indonesian crude palm oil to meet orders globally after floods in a key growing area submerged estates and cut off roads, adding to Asia's escalating food costs. Malaysia's worst flood in four years may force big Asian buyers to shift some of their rice and soybean stockpiling efforts to include palm oil, a key ingredient in cooking oil, as they struggle to keep in lid on inflation.
Top food buyers India and China, which account for more than half of total palm oil export annually, are scrambling to use monetary policy tools and food cost measures to rein in rising inflation. Thai Deputy Prime Minister Suthep Thaugsuban said on Tuesday that the country will buy an additional 120,000 tonnes on palm oil in stages till end-March, more than an expected 50,000-100,000 tonnes.
"Refiners will have a lot in their hands now. They need to take up from Indonesia, try and meet Thailand's import requirements and stock up a little for themselves after the floods," said a Malaysian trader. Thailand usually only imports palm oil from Malaysia when necessary, but flooding there has disrupted shipments so it may also have to turn to Indonesia this time. "The oil could come from Malaysia and Indonesia, but it should be bought at market prices," Thaugsuban told a media conference in Bangkok.
Although La Nina-driven rains in Malaysia since the weekend have slowed, the floods have killed three people, forced 50,000 from their homes and turned small towns surrounded by oil palm estates into islands. With 70,000 tonnes of crude palm oil now delayed for processing, refiners in Malaysia's key export port of Pasir Gudang in Johor are eyeing Indonesian palm oil stored in floating barges in the Malacca Strait.
To ensure domestic cooking oil supplies, Indonesia raised its export tax on crude palm oil to 25 percent in February from 20 percent as international prices rose on tight global vegetable oil stocks and resilient demand. Another Malaysian refiner said that at least 20,000 tonnes of Indonesian palm oil was waiting to be unloaded at Pasir Gudang in Johor. Although Malaysia is the second largest palm oil producer in world after Indonesia, its refining industry is the biggest and most extensive. Malaysian markets are closed on Tuesday for a public holiday and will re-open on Wednesday for the morning trading session before being shut for the rest of the week.

Copyright Reuters, 2011

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