IOI undecided on resuming palm oil trade with SMART after audit

KUALA LUMPUR (Reuters) - Malaysia's IOI Corp stopped buying palm oil from PT SMART three to four weeks ago, and is still undecided on whether to resume purchases after an environmental audit last week gave a mixed score card to the Indonesian planter, traders said on Monday.

According to the audit results, the Indonesian palm oil giant had not destroyed primary forest but had planted in greenhouse gas-rich peatlands.

Greenpeace reports claim that SMART was clearing peatland and high conservation value forests that shelter endangered species and trap climate-warming gases, prompting Unilever and Nestle to drop the firm as supplier.

"IOI supplies the bulk of its crude palm oil to Europe and there is a lot of pressure to ensure that their supply chain is clean," said a trader with links to IOI. "SMART needs to go well beyond the audit to regain their clients' confidence."

IOI, Malaysia's No. 2 planter, used to order crude palm oil cargoes from SMART's parent, Singapore's Golden Agri-Resources, to fulfill its own supply contracts to consumer goods giant Unilever.

IOI has stopped buying from Golden Agri and issued written clauses to its brokers to ensure that the firm and its Indonesian unit are not the end-suppliers, said two traders who saw the documents.

Based on shipping records, IOI buys about 20,000-40,000 tonnes of crude palm oil from SMART monthly.

IOI officials were not immediately available for comment. SMART Chief Executive Daud Dharsono told Reuters he could not immediately comment on the matter.

After the audit, SMART said it was confident of winning back Unilever and Nestle, but Unilever said it would not resume buying until SMART gets certified by the Roundtable on Sustainable Palm Oil -- an industry body of planters, green groups and consumers.

Anglo-Dutch Unilever is the world's largest consumer of palm oil, buying about 1.5 million tonnes annually for products like Dove soap. SMART says Unilever and Nestle account for just 4-5 percent of its sales.

IT'S ABOUT IOI TOO

SMART is not the only planter to come under scrutiny from green groups and European consumers. IOI had to fend off allegations by Friends of Earth that it also cleared rainforests in Indonesia's Kalimantan province on Borneo island.

Although IOI dismissed that report as inaccurate, its key customer, Finnish oil refiner Neste Oil, said it would conduct its own probe into the matter. Unilever said it was confident IOI will address the claims, if found true.

Both Unilever and Neste Oil have said their supply contracts with palm oil firms include clauses that allow for termination of the agreement if the suppliers are found to be damaging the environment.

(Editing by Himani Sarkar)