Rains add to supply pressure, likely to push up coconut oil prices

Written by Rajesh Ravi | Kochi | Updated: Aug 8 2014, 08:15am hrs
With good rains in south India creating supply-side pressure, coconut oil is likely to firm up in coming days. Coconut oil demand is already at a record high and the price has more than doubled since last year. With festival Onam drawing closer, traders see the demand for coconut oil moving up. India is the second biggest buyer of vegetable oil, importing nearly 60% of its 16-17 million tonne annual consumption.

Coconut oil has moved up by Rs 4-6 a kg in four weeks as rains picked up in Kerala. With unusual rains in some parts of Tamil Nadu, the supply of copra from could also be constrained. We expect the market to move up by another 15-20% in the coming months as the festival demand kicks in from the small- scale snacks industry, said Talat Mehamod, a member of the Coconut Oil Merchants Association (COMA) and a trader at the terminal market of Kochi. The supply of copra is likely to drop as drying would not be easy in the rains, he said.

Coconut oil was trading at R165 a kg on Thursday at the Kochi wholesale market while the retail prices were above R180. The branded packing was also sold at Rs 190 a kg. Competing palm oil was trading at Rs 70 per kg in the retail market, whereas close substitute palm kernel oil was selling at Rs 100 a kg. Lower prices for palm kernel oil would put some pressure on the coconut oil as the snacks and bakery sectors tend to shift to the cheaper alternative.

Talat said that coconuts are being exported to neighboring countries like Pakistan leading to a tightness in the supply. Coconut is also actively traded in the edible form as input in sweets. Organised retail is also selling more coconut in the form of milk, powder and desiccated coconut, he added. Kerala is a major coconut-growing state with an area of 10.20 lakh hectares and production of 5,911 million coconut, followed by Tamil Nadu (3.20 lakh hectares and 3,716 million coconut), Karnataka (2.87 lakh hectares and 1,493 million coconut) and Andhra Pradesh (0.95 lakh hectares and 780 million coconut).