Sluggish demand at the current market levels is likely to weaken the coconut oil prices further, traders said. Prices have already corrected from the high of R169 per kg to the R142-45 level due to resistance from local buyers.
India is the world’s biggest buyer of vegetable oil, importing nearly 60% of its 16-17 million tonne annual consumption.
“Market is till very high even after coming down by R10-15 per kg. Competing oils are way below and local buyers are shifting to them. There are plenty of stocks in Tamil Nadu as the traders are holding it and releasing it in a staggered manner. The market is likely to decline further as demand continues to remain low,” Talat Mehamod, member of the Coconut Oil Merchants Association (COMA) and trader at the terminal market of Kochi, said.
Coconut oil was quoted R144 per kg on Tuesday evening at the Kochi wholesale market with retail prices ruling above R180 and some branded oil being sold at R190 per kg. Competing palm oil is retailing at R60 per kg while close substitute palm kernel oil is selling at R90 per kg.
Lower prices for palm kernel oil would put some pressure on the coconut oil as the snacks and bakery sector tend to shift to the cheaper alternative. Normally, continuous supply of coconut oil from Tamil Nadu keeps the market under pressure, as consumption at the household level is limited to Kerala and certain parts of southern Karnataka and Goa. Industrial users tend to substitute coconut oil with palm and palm kernel oil when the price difference is above R10 per kg. Kangayam, in Southern Tamil Nadu, emerged as a major trading center of coconut oil in the ’80s with the spread of coconut cultivation in Tamil Nadu.
“High price for coconut oil has also led to rampant adulteration and this is also affecting consumption. At the retail level consumers are consciously shifting to other edible oils as news reports of adulteration with paraffin wax is doing the rounds,” Talat added.
A proposal by the Union Government to double the import tax on crude edible oils and raise that on refined oils by 50 % could support the market. The seasonal demand of coconuts for Sabarimala pilgrims may also help in reducing the supply. Pilgrims to the hill shrine of Sabarimala take 4-5 coconuts per person as offerings to the deity, and annually more than one crore people visit the temple.
Indians consume around 14 kg a year of edible oils compared with a global average of 24 kg. Edible oil consumption is rising by 5.6% annually, while production has grown at a much slower pace, 1.8% on average.