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Copra: Testing new lows

Suresh Krishnamurthy

THE relentless downtrend in the prices of copra, which started around the same time last year, has led to prices plunging to their 10-year lows. Traded prices of copra are now roughly 50 per cent of the levels at the same time last year. And with the pro spects of a healthy crop in the ensuing season, the outlook on the price front does not appear positive. Prices are likely to remain subdued even though downside from present levels may be limited.

Prices during last year had taken a nosedive in the backdrop of reduced demand for copra from industrial users. The competition from imports of palm oil was largely responsible for the downtrend in copra which is used to produce coconut oil. In June, the Government hiked import duties on palm oil substantially, but to no avail. The consistent decline in international prices of palm oil more than compensated for the hike in import duties.

Despite the record procurement by the Government, the prices of copra have declined during the year. This year, the Government has announced minimum support prices of around Rs 3,250 per quintal and the indications are that it is likely to procure simila r quantities.

However, the market price is likely to remain subdued. The stocks bought by the Government have to be offloaded to the millers which would tend to depress demand. Also, imports of palm oil have continued to put pressure on coconut oil prices. This may in turn reduce the demand from the millers.

In fact, the declining trend in coconut oil prices is not restricted to India alone. This situation obtains in other Asian countries such as the Philippines and Indonesia, which are two of the world's major coconut producing countries. International pric es of coconut oil and palm oil have declined to 10-year lows amid record production.

While international prices of coconut oil have started marginally firming up, the threat of imports of copra and coconut oil is still alive. In this backdrop, the only factor that could lead to firm trends in domestic copra prices is the upward revision of import duties on palm oil, copra and coconut oil. If any such move materialises, there may be a limited upside in store.

Companies in the organised sector of the coconut oil industry have been major beneficiaries of the soft price trends in copra and coconut oil. Soft input prices, while improving their margins, have also been helpful in combating the competition from the unorganised sector.