* EU-based food makers have demanded lower mineral oil content
* Food-grade lubricants can be 8-10 times more expensive
* EU regulators call for cuts to other contaminants
* Hydrocarbon contaminants found across vegetable oils
By Mei Mei Chu and A. Ananthalakshmi
KUALA LUMPUR, Feb 18 (Reuters) - The palm oil industry, long-accused of large scale deforestation, is bracing for another hit to its business: machinery lubricants seeping into the world's most consumed edible oil during processing.
European food companies, including Nestle, have in recent months asked top palm oil producers in Indonesia and Malaysia to lower the amount of mineral oil hydrocarbons found in palm oil, industry officials told Reuters.
The solution is to use food-grade lubricants in machines that turn palm fruit into the oil used to make everything from infant formula to chocolate. But such lubricants can cost 8-10 times more than their petroleum-based or synthetic counterparts and could hurt profit margins, the officials say.
Reuters is the first to spell out this latest concern, which follows discussions in Europe to regulate the levels of other contaminants found in edible oils such as palm.
"They (European food makers) say hydrocarbons are found in our oils because of the way we process the fruits," said Nageeb Abdul Wahab, chief executive of the growers' group Malaysian Palm Oil Association.
"It is easily addressed, but costly. The lubricant we use sometimes comes into contact with our product. To address this issue, we have to use food grade lubricant, but the available options are very, very expensive."
Such contaminants are found across several food products, including vegetable oils, such as soy and sunflower, and can enter food through packaging materials, additives or during storage.
Some are carcinogenic, and the European Food Safety Authority flagged them as a potential health concern in 2012.
The European Union has already passed a law to phase out palm oil from renewable fuel by 2030, because of concerns about deforestation concerns.
But there are no European regulations on mineral oil hydrocarbons in food. Some palm oil buyers, however, have established their own limits, industry sources said.
Nestle, a big buyer of palm oil, said it was actively monitoring its supply chain.
"We are reinforcing our controls by working with suppliers on acceptable levels of Mineral Oil Saturated Hydrocarbons (MOSH) and Mineral Oil Aromatic Hydrocarbons (MOAH) in agricultural raw materials," Nestle told Reuters in an emailed statement, referring to the different types of hydrocarbons.
"Although there are currently no regulatory requirements in place, our objective is to ensure levels of MOSH and MOAH are as low as feasibly possible in the ingredients that we source."
An exporter of palm oil to the food industry said only European buyers had asked for a reduction in traces of the contaminant in palm oil.
"The industry has started to request suppliers change to food-grade lubricant at all the critical contact points for the FFB (fresh fruit bunch) processing," said an official from the exporting company, declining to be identified as he was not authorised to talk to media.
Some Malaysian producers have already started to make the change, he said.
Industry officials say food safety concerns would be a heavy blow for palm producers, as food is the main market for the commodity, accounting for nearly 70% of its global use.
"Anything related to food can checkmate the industry," the palm association's Nageeb said.
Already the industry is trying to adjust refining processes to cut the amount of glycidyl esters (GE) and 3-monochloropropane diol (3-MCPD) contaminants found in refined fats and oils, including palm oil.
The EU in 2017 introduced safety levels for GE and is set to introduce new limits on 3-MCPD soon. These and other recent EU regulations have led to accusations from Indonesia and Malaysia that the bloc is unfairly targeting palm oil to protect its own oilseed industries.
Nevertheless, industry regulator the Malaysian Palm Oil Board (MPOB) is considering setting its own mineral oil hydrocarbon limit nationally, and is working with the health ministry and palm firms, sources said.
The health ministry directed questions to the MPOB, which did not immediately respond to a request for comment.
Indonesian producer Musim Mas said it has already switched to food-grade lubricants and made other changes in the processing of palm oil to address buyer concerns about the contaminants.
"Customers' concerns regarding hydrocarbon-based lubricants contaminating food sources are an increasing requirement for 2020," a spokeswoman said. (Reporting by Mei Mei Chu and A. Ananthalakshmi in Kuala Lumpur and Fathin Ungku in Jakarta; editing by Barbara Lewis)