Why Coconut Oil Prices Witnessed 50% Decline Within a Year?

The markets last year could best be summed up as a "storm in a teacup," if there is one metaphor to express them. Many situations, such as persistent inflation, the Russia-Ukraine conflict, covid rerun, severe weather conditions, high-interest rates, and others, have had an impact on the global markets. After Russia invaded Ukraine and caused havoc in the commodities market, it is obvious that the key lesson learned is that markets are surprisingly robust and quickly adjust to changing circumstances. As one of the most widely used edible oils on earth, Coconut Oil differs from most other oils derived from plants or fish in that it contains up to 90% saturated fat and just a small amount of unsaturated fatty acids. It is healthy and widely preferred by consumers because it does not have any cholesterol and can be used as a healthy cooking alternative.   

Coconut Oil, which is valued for its purported health benefits, including antibacterial and antioxidant properties that enhance skin and oral health along with aiding in weight loss, is a by-product of the cultivation of coconuts. Its numerous industrial applications include the production of shampoos, synthetic rubber, glycerine, soaps, detergents, and much more. Coconut Oil is utilized in edible fats like margarine and vegetable shortenings after being refined to eliminate free fatty acids and deodorize them. Refined Coconut Oil is used by confectioners and bakers in products that can stay out after being made for a while. The edible Coconut Oil, which is typically made by crushing copra, has been used for thousands of years in tropical nations. The production of Coconut Oil has expanded over the past 10 years as a result of an increase in demand for the main advantages of Coconut Oil on a global basis.

Following a historic price increase in March 2022, Rotterdam (Netherlands) saw a decrease in the cost of Lauric Oils (Coconut Oil with a high concentration of lauric acid, a C12 saturated fatty acid) in two of the following months, April and May 2022. In parallel, the price of Coconut Oil (CNO) decreased by 6% in April 2022 and by 13% in just May 2022. The amount of Coconut Oil imported into the Netherlands increased by 23.2% on a yearly basis, indicating significant demand for the product in the domestic market. This high demand, combined with abundant supplies in the Euro region, led to Coconut Oil's low pricing within a year.

The substantial price premium of Palm Kernel Oil (PKO) over Coconut Oil was the main driver of the downward trend in Lauric Oil prices. Given that Palm Kernel Oil is produced in greater quantities than Coconut Oil, the substantial price premium had put downward pressure on the oil price, which in turn caused the price of Coconut Oil to fall. The fall in Palm Oil prices, which occurred as Indonesia's Palm Oil goods returned to the global market after the government of Indonesia chose to abolish the Palm Oil export ban, also contributed to the downward trend in Coconut Oil prices. It should be mentioned that in recent years, Indonesia has supplied around one-third of the edible oils and fats sold in the international market. Due to increased supply and market uncertainties, the price of Coconut Oil started to fall extensively from the second quarter of 2022. Edible Oil costs significantly decreased from the previous year and no longer hurt consumer wallets.

In addition to placing pressure on the price, the high price premium of Palm Kernel Oil (PKO) caused a change in demand for Coconut Oil. In comparison to the same period in 2021, import demand for Palm Kernel Oil from the US decreased by 20% during the first quarter of 2022. The market was oversupplied due to a 35% rise in the shipment of Coconut Oil to the US market over the same time period, which also saw an 8% increase in the import of Lauric Oils. Crude Coconut Oil (CNO) imports into the US up until the middle of 2022 stood around 183,301 MT.

Due to favorable weather, particularly in Southeast Asian countries, Coconut Oil production increased during the second half of 2022, which helped the supply side. High yields of coconuts were produced in key producing nations like the Philippines, Indonesia, India, Malaysia, Papua New Guinea, Thailand, and Vietnam due to favorable climatic conditions. Copra output thus also increased, which had a favorable impact on the supply of Coconut Oil. Considering the demand and ample supply, the prices of Coconut Oil fell drastically in these nations. From July to September 2022, copra production in the Philippines grew to 4.12 million metric tonnes, up 1.0 percent from the 4.08 million metric tonnes produced during the same time period in the previous year.

In 2022, the volume of Coconut Oil exported from India increased by 13.7% year-on-year, demonstrating a sharp price reduction and increased global demand. With the sharp drop in the price of raw coconuts across the country, India's Agricultural Department's inefficiencies in the capable acquisition of coconuts became apparent. The price of raw coconut dropped to USD 0.28 for the first time in the last five years. Since the government started buying raw coconuts at the Minimum Support Price, this was the first time the coconuts price has experienced a sharp fall. Producers of Coconut Oil in India claimed that the market was seeing muted demand and that they were very skeptical of a price increase throughout the year, particularly given that the price of edible oils was already declining.

Even though the global economy was in a precarious situation, there was a significant improvement in the supply and international trade of Coconut Oil compared to 2021, which put pressure on the price of Coconut Oil in the second half of 2022. The price of Coconut Oil has been under additional pressure due to the declining price premium of Palm Kernel Oil over Coconut Oil. As a result, the price of Coconut Oil fell significantly, which encouraged an increase in the oil's export to other markets.