Bearish Market of Coconut Oil in the Second Half of 2022
Prices of lauric oils dropped in Rotterdam in two consecutive months of April and May 2022 after recorded a historical price hike in March 2022. Price of palm kernel oil (PKO) plunged by 15% in April and again dropped by 12% in May 2022. At the same time price of coconut oil (CNO) went down by 6% in April 2022 and plunged by 13% in May 2022. Downward trend of lauric oils’ price was mainly led by the high price premium of palm kernel oil over coconut oil. The price premium of palm kernel oil over coconut oil in February 2022 was US$295 which was recorded the highest ever. The high price premium had put price pressure on palm kernel oil price which brought about price of the oil to go down and inevitably brought price of coconut oil to weaken since palm kernel oil supply is double of coconut oil. The downtrend of lauric oil prices was also brought by the decline of palm oil prices as Indonesia’s palm oil products were back to international market after Indonesian government decided to lift export ban of the oil. It should be noted that Indonesia supplies roughly one third of oils and fats in the global market in recent years. Price of lauric oils is expected to remain weak in the second half of 2022 owing to higher supply and uncertainty in the global market.
High price premium of palm kernel oil was not only put a pressure on the price, but also brought about a shift in demand from palm kernel oil to coconut oil. During the first quarter of 2022, import demand for palm kernel oil from US dropped by 20% as opposed to the same period in 2021. Meanwhile, shipment of coconut oil to the US market jumped by 35% in the same period leading to an increase in import of lauric oils by 8% (table 1). It is worth noting that US demand for lauric oils upsurged in 2021 by 3%. US Census Bureau reported that import quantity of the oils increased from 823,581 tons to 849,808 tons.
The shift in demand of lauric oils at the expense of palm kernel oil was also observed in European market. During period of January-April 2022, imports of coconut oil by European countries leveled up by 5.7% to 313,513 tons. At the same time, import of palm kernel oil dropped by 16% compared the volume a year earlier. In total, shipment of lauric oils to European countries lessened by 4.9% during the period. Lower demand for lauric oils by European countries was attributed to higher price of the oils and economic uncertainty in the continent caused by Ukraine-Russia war.
A lower demand of lauric oils was also observed in China. ITC data showed that shipments of lauric oils during the first quarter of 2022 reduced to 164,397 tons from 181,584 in 2021 or a decrease of 9.5%. The lower import of the oils was mainly attributed to the drop in import of palm kernel oil. The persistent lockdown enforced by Chinese government and a high price of the oil had led demand of the oil to decline. The high price of palm kernel oil has also led to a shift of demand at the expense of palm kernel oil in Chinese market. During the period, demand for coconut oil upsurged by 51% from 33,664 tons in January-March 2021 to 50,977 tons in January-March 2022. However, the increase could not offset the low demand of palm kernel oil.
On the supply side, global production of lauric oils is expected to continue improving in the second half of 2022 as a result of good weather condition especially in South East Asian countries. Favorable weather condition brings about higher coconut yield in major producing countries such as Philippines, Indonesia, India, Malaysia, Papua New Guinea, Thailand, and Vietnam. As a result, copra production in these countries is projected to increase. Copra production in the Philippines is projected to rise by more than 20% to the level of 1,84 million tons. In Indonesia, production of copra is also expected to go up reaching annual production of 1.37 million tons or an increase of 4.6% compared to previous year’s production. Thus, global production of copra is projected to reach 4.9 million tons in 2022 or an increase by 9%. At the same time, production of palm kernel is also projected to go up to 18.74 million tons in 2022 as Indonesia and Malaysia is expected to have higher palm kernel production during the year.
Since copra and palm kernel production is projected to level up, production of lauric oils in 2022 is estimated to increase reaching 11.3 million tons or an increase by 5.2% as opposed to the previous year’s production. Coconut oil production is expected to reach 3.1 million tons or level up by 12%. At the same time palm kernel oil production is estimated to go up by 3% to reach 8.2 million tons.
The supply of coconut oil is expected to improve, so the global trade of coconut oil is also expected to continue recovering in the coming year amid uncertainty in the global economy. Export of coconut oil from Philippines in 2022 is forecasted to reach 1.05 million tons. This means an increase of 22% as opposed to the export volume a year earlier. Likewise, Indonesia is most likely to experience higher export of coconut oil in 2022. Export of coconut oil from Indonesia is estimated to reach 640 thousand tons during the year. Thus, global supply of the oil is projected to reach 2.28 million tons in 2022.
With an expected increase in supply, coconut oil price will face a price pressure in the second half of 2022. Lessening price premium of palm kernel oil over coconut oil will be an additional pressure on coconut oil price. Therefore, price of coconut oil is expected to remain weak in the second half of 2022 which will be an incentive to boost export of the oil to global market.
Coconut Products Outlook 2022 - 2025