Bullish Market of Coconut Oil in 2024

Bullish Market of Coconut Oil in 2024

In 2024, the global production of lauric oils is forecasted to see a modest expansion, with output expected to reach 11.58 million tons, a slight increase of 0.1% from the 11.57 million tons produced in 2023. This growth, however, masks a significant contrast between the two key oils that dominate this market: palm kernel oil (PKO) and coconut oil (CNO).

The minimal growth in total lauric oil production is driven primarily by an increase in palm kernel oil production, which continues to benefit from favorable growing conditions for oil palm plantations, particularly in Southeast Asia. In contrast, the production of coconut oil is expected to decline due to a range of adverse factors affecting major producing countries. Coconut oil production, primarily concentrated in the Philippines and Indonesia, is set to decrease, with producers facing difficulties related to the exhaustion of coconut trees following two years of high yields. These trees, coupled with the heavy rainfall experienced in key growing regions, are under stress, leading to lower productivity.

Global coconut oil production is forecasted to decrease by 56 thousand tons in 2024. The Philippines, one of the world’s leading coconut oil producers, is expected to see production fall to 1,238 thousand tons, representing a year-on-year decline of 7 thousand tons. Indonesia, another major coconut oil producer, is projected to experience an even steeper decline, with production dropping from 893 thousand tons in 2023 to 850 thousand tons in 2024.

In contrast to the decline in coconut oil production, palm kernel oil production is anticipated to grow by 67 thousand tons in 2024. This increase is expected to be led by the largest palm kernel oil-producing nations, Indonesia and Malaysia. Indonesia is projected to expand its palm kernel oil output to 5.0 million tons, while Malaysia’s production is expected to reach 2.15 million tons. This growth reflects the resilience of the palm oil industry, which continues to expand despite environmental concerns, particularly surrounding deforestation.

The growing palm kernel oil production highlights a diverging trend between the two main lauric oils. While coconut oil producers struggle with declining output, palm kernel oil producers are capitalizing on their ability to ramp up production, particularly in response to rising global demand.

The decline in coconut oil production is likely to have a significant impact on global import demand. With lower production levels, the availability of coconut oil on the global market will be constrained, and as a result, import volumes are expected to decrease by at least 52 thousand tons in 2024. Despite this decline, demand for coconut oil in certain markets remains stable or is even projected to increase slightly.

In Europe, for example, demand for coconut oil is expected to remain steady, with a slight possibility of growth due to regulatory shifts such as the European Union Deforestation Regulation (EUDR). European buyers are increasingly concerned with the sustainability of their supply chains, and coconut oil, which is seen as a more sustainable option compared to palm kernel oil, could see a small uptick in demand. In the United States, coconut oil import demand is projected to rise by 11%, driven by a growing interest in plant-based and health-conscious products. Similarly, China is expected to significantly increase its coconut oil imports, with a projected increase of 28 thousand tons.

In contrast, the higher price premium of coconut oil relative to palm kernel oil is expected to prompt many buyers to shift their focus toward palm kernel oil. As a result, global demand for palm kernel oil is forecasted to increase by 96 thousand tons in 2024. Specifically, European demand for PKO is expected to rise by 17 thousand tons, while U.S. imports are projected to increase by 30 thousand tons, reflecting a broad shift in global consumption patterns. Other markets around the world are also expected to follow this trend, with at least 60 thousand tons of additional palm kernel oil imports projected globally.

The global consumption of coconut oil is expected to decline in line with falling production levels. The contraction in production is likely to curtail both exports and domestic consumption. Exports of coconut oil are projected to decrease by around 140 thousand tons in 2024, while domestic consumption is expected to decline by 64 thousand tons. However, the global impact of this contraction may be mitigated by reductions in stockpiles. Global coconut oil stocks are projected to decrease by 47 thousand tons, offsetting some of the reductions in consumption and exports.

Lauric oils witnessed significant price increases during the first half of 2024. Palm kernel oil (PKO) started the year at US$978/MT, gradually rising to US$1,156/MT by June. Coconut oil (CNO) saw a similar trend, with prices increasing from US$1,126/MT in January to US$1,400/MT in June.

The average price during this period was US$1,138/MT for PKO and US$1,295/MT for CNO. When compared to the same period in 2023, PKO prices had risen by 12%, while CNO experienced a 22% increase. This price divergence is expected to persist, with coconut oil maintaining its premium over palm kernel oil due to sustained demand, particularly in Europe. As the EUDR regulations come into effect, European buyers are likely to favor coconut oil over palm kernel oil due to its perceived sustainability benefits, further reinforcing its price strength.

The lauric oils market is set for a dynamic and challenging year in 2024. The projected decline in coconut oil production, coupled with rising palm kernel oil output, will shape the market's supply and demand dynamics. Shifts in consumer preferences, particularly in response to price differentials and sustainability concerns, are expected to drive significant changes in global demand patterns.

For industry stakeholders, it is crucial to closely monitor these trends and adapt to the evolving market landscape. The continued rise in palm kernel oil production offers opportunities for growth, but the price premium commanded by coconut oil, driven by regulatory pressures and shifting consumer behavior, will continue to influence purchasing decisions. This report provides a comprehensive analysis of the key factors shaping the lauric oils market in 2024, equipping stakeholders with the insights needed to navigate this complex and evolving sector.