04/10/2010 (The Financial Express), Kochi - Coconut oil prices are rallying in the domestic market mostly on global cues where prices of lauric oil, which comprises of coconut and palm kernel oil are moving up surpassing the rise seen in other edible oils.

Production of copra and crushing of coconut oil has been lower in Philippines in 2009-10 because of climate change. This coupled with higher price for palm oil and palm kernel oil in Malaysia and Indonesia have aided the rally in coconut oil.

Analysts expect coconut oil production in 2010-11 oil year (November-October) to remain lower but will be compensated by the increase in palm kernel oil.

In the domestic market coconut oil touched Rs 71 per kg as on Friday with Kangayam (delivery at Kochi ) also priced the same. Copra prices have firmed up substantially in the last two weeks from Rs 3,500 per quintal to almost Rs 5,200 per quintal.

Big companies like Shalimar and Marico are buying coconut oil at around Rs 5,500 per quintal, Talat Mehamod, member of the Coconut Oil Merchants Association and trader at the terminal market of Kochi said.

Oil supply from Tamil Nadu has declined substantially and helped in the firming up of the market. Mehamod said that Tamil Nadu is exporting coconuts to Pakistan and Bangladesh in bulk leading to a decline in conversion in domestic markets.

Normally, coconut oil prices eases after the peak consumption period, which is during the festival of ‘onam’ in Kerala. Coconut oil is consumed mostly in Kerala and certain parts of southern Karnataka and Goa.

Interestingly, this time around coconut oil prices began their strong upward rally after the festival period.

“If firmness of the market continues the prices could cross the record of Rs 74.50 per kg achieved in 2005,” Talat said. He also feels that increased price of substitute palm oil and palm kernel oil might have helped in a steady market rate for coconut oil.

“Palm kernel oil is a very close substitute for coconut oil. It is also used in adulterating coconut oil when the price difference is huge,” he added. Palm kernel oil was selling at around Rs 67-69 per kg in south Indian markets.

Globally, edible oil are expected to rise in the coming months because of lower production of soybean, sunflower and rapeseed oil. Increase in corn and wheat prices would lead to a gradual shift in land under edible oil seeds to grain and this trend is expected to intensify in 2010-11, leading experts have said. The weather could also be a spoiler in the days to come with La Nina factor reducing rains in Brazil and Argentina , which could lead to lower production of soybean seeds.

“Increased consumption of edible oils by India would henceforth be coming at higher prices and this could aid and sustain higher price for the coconut oil,” experts at a recently concluded meet on edible oils opined.