02/02/2011 (The Star Online), Kuala Lumpur - Malaysian refiners snapped up more Indonesian crude palm oil to meet orders from China and India after floods in a key growing area submerged estates and cut off roads, adding to Asia's escalating food costs.

Although the La Nina-driven rains have slowed in Johor yesterday, the floods have killed three people, forced 50,000 from their homes and turned small towns surrounded by oil palm estates into islands.

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.

Government officials from neighbouring Thailand are meeting to decide whether it needs an extra 50,000 tonnes to 100,000 tonnes of crude palm oil to tackle its domestic supply shortage.

With 70,000 tonnes of crude palm oil now delayed for processing, refiners in key export port of Pasir Gudang in Johor are eyeing Indonesian palm oil stored in floating barges in the Malacca Strait.

“The roads leading to Pasir Gudang port still have some floods and trucks can't get through but on the other side, Indonesian tankers are lining up to offload since many of them escaped this month's higher tax,” said a Malaysian refiner.

To ensure domestic cooking oil supplies, Indonesia raised its export tax on crude palm oil to 25% in February from 20% 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.

Although Malaysia is the second-largest palm oil producer in the world after Indonesia, its refining industry is the biggest and most extensive.

Factories in Malaysia usually slow down ahead of Lunar New Year this week but refiners need to secure more supplies after the holiday as Malaysian stocks have hit a five-month low in December and demand is likely to pick up.

The previous day, Malaysian palm oil futures ended up 3% at one-week high as traders covered positions ahead of the long holidays over the floods.

Malaysia's floods come as a massive cyclone is due to slam into northeast Australia this week, potentially hurting a third of the sugarcane crop and fuelling agriculture commodity prices. These are the latest in a string of weather-related disasters, starting from the drought in Russia last summer to recent floods in Australia, which boosted wheat prices and initially started a scramble for food supplies this year.

“Palm oil and sugar could also be the next hot food items for governments to scramble for. We could be seeing a lot of government policy reactions in the coming week,” said an analyst with an investment bank in Singapore.

Rice is already trading higher as governments from Indonesia to Bangladesh stock up to prevent food shortages, which in the past have provoked protests.