Speculators give coconut oil traders a tough time

Hectic speculative trading pushed up prices of coconut oil futures contracts today. However, the spot market remained low key, thanks to an increase in supply.

Traders are in a dilemma, as the sudden upswing in futures prices is not in tune with the demand-and-supply position in the market. They feel the surge in futures prices is mainly due to a high order of speculative trading. The market might be on a temporary bull run, owing to festival demand in the southern states and unconfirmed reports of an impending increase in the support prices of copra, said a trader here.

On Tuesday, the price of coconut oil for January delivery on the First Commodities Exchange of India here rose to Rs 5,055 a quintal from the previous day's close of Rs 4,955.

The prices of February, March and April contracts too increased to Rs 4,935 (from Rs 4,855), Rs 4,760 (Rs 4,660) and Rs 4,670 (Rs 4,575), respectively.

But, the spot prices are on a decline for the last few weeks on reports that coconut oil production may outbeat demand. On Tuesday, spot prices were ruling in the range of Rs 5,250-5,275 a quintal from the January 3 high of Rs 5,325 and the October (2006) high of Rs 5,670-5,700.

Leading stockists believe the prices will plummet further.

With Tamil Nadu withdrawing VAT on coconut oil, there is hectic buying in the state, especially from industrial consumers. Cross-border trade between Kerala and Tamil Nadu is active too, with Tamil Nadu traders offering lower tags than those of Kerala.

Meanwhile, copra and coconut oil production will be in full swing in most of the southern states, especially in Kerala by the next month. But according to traders, supply of copra has not picked up yet, even as coconut oil output has increased sharply. A section of traders attributed this mainly to adulteration of oil.

Local traders opined that the copra and coconut oil markets were poised for a bearish phase, as the production season would be in full swing soon. Apart from Kerala and Tamil Nadu, Andhra Pradesh and Karnataka would also increase production in the 2007 season, they added.

The coconut oil market had entered a bull phase in mid-September 2006. The higher tags had continued till Christmas and Thanksgiving due to festive demand and support from the bullish edible oils market.

Although there would be an increase in production, demand was also on the rise, especially from coconut oil-based FMCG companies. Hence, a sharp fall in prices could be ruled out, said a section of traders.

However, another section of the trading fraternity anticipated a drop in prices, especially by March and April following high production.