MARKET REVIEW FOR COCONUT OIL

May 2017

                After experiencing a bullish market in 2016, coconut oil market showed an easing trend in the beginning of 2017. In January 2017, the price of coconut oil was US$1,815/MT and reduced to US$1,571/MT in April 2017. At the same time, the price of palm kernel oil dropped from US$1,760/MT in January 2017 to US$1,029/MT in April 2017. This brought about the price premium over palm kernel oil to rocket from US$55 in January 2017 to as much as US$542 in April 2017. Since in international market, coconut oil plays a complementary role with palm kernel oil, the high price premium over palm kernel oil put a pressure on the price of coconut oil. This may not only point toward a downtrend in palm kernel oil but also mirrors the prevailing shortage of coconut oil supply.

               The supply of coconut oil suffered from insufficient production and competition for raw materials with other coconut products which led to a reduction in export supplies. Philippines and Indonesia as major exporting countries of coconut oil underwent strong reductions in exports of the product. In the calendar year of 2016, total export of coconut oil from the two countries fell for more than 17% compared to the same period in 2015. The drop was following a negative trend since 2014 when the world export of coconut oil eased to the volume of 2.146 million MT or experienced a year-on-year decrease by 4.9% after experiencing a substantial increase in previous two years at an average annual growth rate of 10%. In 2015, the global exports of the commodity declined by 1% following a negative trend in the previous year. The reverse trend of global CNO exports is expected to take place in 2017 as copra production is expected to improve though in limited pace.

               Philippines’ exports of coconut oil from January to December 2016 were 726,827 MT or dropped by 14.8% compared to the same period of 2015. This export volume is the lowest since 1999. It is worth noting that in the last decade the lowest export volume of coconut oil from Philippines was in 2011 accounting for 781,411 MT. Meanwhile, exports of the commodity in 2015 were 853,152 MT or decreased by 0.4% compared to that of 2014. Europe, and USA were still the main destinations of coconut oil from the Philippines following by Japan. Europe absorbed for more than 53.2% of the Philippines’ total export of the commodity in the said period, and about 36.3% went to USA. 4.7% of the commodity was shipped to Japan and 2.3% was sent to Malaysia. Apart from the drop in the domestic copra production, Philippines’ export of coconut oil significantly declined since the industry also faced difficulties in finding new source of raw materials as other main source countries such as Indonesia and Papua New Guinea faced the same problems due to a lagged effect of unfavorable weather in 2015.

                Indonesia, as the second largest exporting country, has also been affected by the drop in copra supply. From January to December 2016, exports of coconut oil from Indonesia plunged by 20.7% compared to the same period in 2015. The drop was following the declining trend in the previous year which was contracted by 1.6% from 771,419 MT in 2014 to 759,381 MT in 2015. The decline was mainly due to a shortage of raw materials as a result of a long drought coupled with competition for raw materials with other coconut products as demand for other products including fresh coconut strengthened. Indonesia’s coconut oil was mainly shipped to United States, China, Netherlands, Malaysia, and South Korea which have been considered as traditional markets for coconut oil from Indonesia. The US has been the largest importing country for coconut oil from Indonesia for years. In the period, 27.5% export of coconut oil from Indonesia was sent to the US. Meanwhile, export of coconut oil to China, Netherlands, Malaysia and South Korea was 19.7%, 16.2%, 14.3% and 8.7% respectively.

                The shortage in the global production has, furthermore, restrained an increasing trend in the global demand. The import demand of coconut oil in the world market was squeezing from 1.97 million MT in 2015 to 1.61 million MT for the corresponding period in 2016. In the same period, the other lauric oil, palm kernel oil, also reduced by 5% to level of 3.29 million MT as opposed to 3.05 million MT. As a result, total imports of lauric oils decreased by 11.4% to a level of 4.66 million MT as against 5.26 million MT of 2015.