LONDON - A number of Western commodity companies are setting up new trading desks in Malaysia as the southeast Asian country introduces incentives in a bid to attract business away from the main regional trading hub Singapore.

Commodity houses Mercuria and Cargill have already set small desks in Kuala Lumpur, two sources said, and others are also studying the possibility.

"We have already attracted 20 or so companies in the past 12-18 months. Some are already trading, some are setting up," said Zainal Amanshah, chief executive officer for Invest KL, a government corporation that promotes the country as a regional destination for multinationals and global commodity traders.

"I think these companies are looking at new cost effective locations with a business-friendly environment so they look at Kuala Lumpur as a good, complementary alternative to Singapore," he said during a promotional visit to Europe.

The incentives include preferential tax treatment, under which trading companies who set up desks only pay three percent of their profit to the government.

Malaysia is also backing the construction of an oil storage facility with capacity of up to 2 million cubic metres in Pengerang, in the south of the country.

"Part of the attractiveness is also the more flexible labour law in Malaysia and the lower cost of living," a source at a trading firm already operating in the country said.

Amanshah said Cargill, which already has some food processing activities in Malaysia, has agreed to set up a hub in Kuala Lumpur for trading soft commodities, starting with cocoa and potentially expanding to others.

Malaysia is the biggest cocoa processor in southeast Asia.

Mercuria was unavailable to comment and Cargill declined to comment.