Cheaper palm oil threatens coconut oil market

Written by Rajesh Ravi | Kochi, Aug 27 | Updated: Aug 28 2008, 05:57am hrs
Coconut oil market is likely to feel the heat of decreasing palm oil prices and the government proposal to subsidise its distribution through the PDS system. Traders speaking to FE said that there are reports that palm kernel oil is also entering India in large volumes. Palm kernel oil is a very close substitute to coconut oil and substitution takes place at very thin difference, Talat Mehamod, a trader at the terminal market of Kochi told FE.

Interestingly, for the past few months coconut oil market has been very firm due to the non-availability of copra and is quoted at Rs 65 at the wholesale market in Kochi. Coconut oil price started moving up this year, after languishing in the range of Rs 4,700-5,000 per 100 kg for more than two years when prices of other edible oils increased rapidly. For the first time in recent past palm oil prices moved up relative to coconut oil and was selling at a margin of Rs 15-20 per kg in the terminal market of Kochi. Palm oil prices had peaked in the global market due to reports that bulk of the oil was being diverted to produce bio-fuel.

Industrial users had slowly shifted to coconut oil when the difference between imported palm oil and coconut oil increased to more than Rs 10 per kg.

Cheaper option could lead consumers to shift to palm oil once again depressing the demand for coconut oil, Talat said. Further drop in palm oil prices could see the hotel and bakery sector turning to it, he added.

Presently the difference between one kg of coconut oil and palm oil at the retail level in Kochi is Rs 15-18. If the subsidised scheme is implemented, retail price of palm oil may slip to less than Rs 40 from the existing Rs 52 per kg, traders said.