* Sabah is country's top palm oil growing region
* Supply concerns could buoy prices slightly -traders
(Recasts, adds minister comment)
By Anuradha Raghu and Niluksi Koswanage
KUALA LUMPUR, March 5 Several palm oil
refineries have slowed operations and some plan to halt output
if a Malaysian military attack on an armed Filipino group on
Borneo island drags on, potentially disrupting supply of the
edible oil to China.
Malaysia's military launched a dawn attack on the group on
Tuesday, trying to end a standoff after violence that killed at
least 27 people and sparked fears of broader insecurity in Sabah
-- the country's top oil palm growing state.
Any disruptions to supply could help buoy prices for the
oil, although traders said that climbs would probably be limited
as high stock levels in the country continue to drag.
Authorities imposed a curfew in the surrounding areas after
the Filipino gunmen shot and killed police officers on Friday,
forcing oil palm estates and refineries to curb operations.
These include Singapore's Wilmar International and
Malaysia's KL Kepong and Kwantas Corp --
with a combined 1.8 million tonnes of processing capacity.
"The three companies owning these refineries are looking to
cease operations if it becomes worse and there is a high chance
it will happen," said a refinery official with direct knowledge
of the matter.
Company officials declined to comment.
A Malaysian government minister said the military operations
would not hurt the country's palm oil sector -- the world's
second largest after Indonesia in terms of output
"What is happening in Sabah is not big enough to affect
supply and demand in the palm oil industry," Commodities
Minister Bernard Dompok told reporters in Kuala Lumpur.
"I do not think refiners are in anyway affected as they are
mostly in town areas."
Much of the palm oil from Sabah is shipped to China -- the
world's second largest consumer of the oil used mostly in
Benchmark Malaysian palm oil futures <0#FCPO:> slipped on
Tuesday in thin volumes after gains in the previous session
lifted prices from near two-month lows. Traders said prices
could recover a little on concerns over the possible supply
disruptions in Sabah, which accounts for a quarter of national
Police roadblocks in the Lahad Datu area -- close to where
the military operations are taking place, have slowed
transportation of palm oil to mills, refineries and ports.
CIMB Investment Bank said in a note that Genting Plantations
had suspended deliveries from two of its five mills to
The Filipino gunmen landed in a coastal village three weeks
ago, staking a historic claim on Sabah. The village was
surrounded by oil palm estates that supply the edible oil to
Felda Global Ventures.
Malaysian security forces have cleared the surrounding
plantations and villages of people since the first clash began
"Our check with Felda Global Ventures revealed that it was
unable to access 1,000 hectares of estates earlier but it is
unclear if the area affected has expanded since Friday's
clashes," CIMB said.
Felda Global Ventures President Sabri Ahmad declined to
comment, saying security operations were still ongoing.
Traders said any interference in supply from Sabah might
provide an opportunity to further draw down Malaysian palm oil
stocks, which hovered near a record high in January.
"Prices will get support from this but not much. We are
still struggling with high stocks in Malaysia," said a trader
with a foreign commodities firm based in the Malaysian capital.
(Additional reporting by Chew Yee Kiat; Editing by Clarence
Fernandez and Joseph Radford)