Bearish Market of Coconut Oil in the First Half of 2023
Lauric oils experienced a historic price hike in March 2022, followed by a steep drop to the lowest level in October 2022, recording a decrease of over 50% in just six months. The prices in October 2022 were the lowest since November 2020. The price constantly weakened during the first half of 2023 as demand in Europe and US dropped due to the economic slowdown in regions. With expected weaker demand, lauric oil prices are set to depreciate or at least maintain the current trend in the second half of 2023. On average, from June to December 2023, prices of palm kernel oil are forecasted to be around US$960/MT, while coconut oil prices are projected to be at US$1,060/MT.
The global production of lauric oils is anticipated to decrease marginally in 2023, with a projected output of 11.39 million tons, compared to 11.46 million tons in the previous year. This decline is primarily attributed to a substantial drop in coconut oil production. Producers in the Philippines and Indonesia are expected to witness a decrease in output due to exhausted coconut trees following high yields in the preceding two years, coupled with ample rainfall.
The world production of coconut oil is forecasted to contract by over 240 thousand tons in 2023. The Philippines, one of the leading producers, is expected to witness a significant decline, with its production plummeting to 1,078 tons, representing a year-on-year drop of more than 236 thousand tons. Similarly, Indonesia, another major producer, is projected to experience a decline in production, from 883 thousand tons in 2022 to 865 thousand tons in 2023.
In contrast to coconut oil, palm kernel oil production is anticipated to increase by 181 thousand tons in 2023. The largest palm kernel oil producers, Indonesia and Malaysia, are expected to bolster their output, with Indonesia projected to produce 4.92 million tons and Malaysia reaching 2.16 million tons in 2023.
The projected decline in lauric oil production is likely to affect the global import demand for these oils. Specifically, coconut oil imports are expected to decrease by at least 311 thousand tons in 2023. European countries' imports of coconut oil are projected to dwindle by more than 81 thousand tons, while China's import demand is forecasted to reduce by over 11%. Furthermore, the US market is expected to experience a decline of 75 thousand tons in its coconut oil import demand.
The high price premium of coconut oil relative to palm kernel oil is likely to drive a shift in demand toward the latter. Consequently, the import demand for palm kernel oil is estimated to increase by 75 thousand tons in European countries, 32 thousand tons in the US market, and at least 75 thousand tons in China, resulting in a global demand rise of 381 thousand tons in 2023.
The expected decline in coconut oil production may lead to a curb in world consumption. Both global exports and domestic consumption of coconut oil are estimated to decrease in 2023. Exports of coconut oil are expected to drop by around 245 thousand tons, and domestic consumption is projected to weaken by 184 thousand tons. Nevertheless, these effects are likely to be mitigated to some extent by reductions in stocks, with global coconut oil stocks expected to reduce by approximately 495 thousand tons.
The global lauric oils market is poised for a dynamic year in 2023, with projected declines in coconut oil production, compensated by increased palm kernel oil output. Shifts in demand patterns are expected due to price differentials between the two oils. Market players must closely monitor these trends to adapt their strategies and optimize their positions in this ever-evolving industry.