Following heavy monsoon rains hitting copra production in the southern states, coconut oil prices are bound to head north.

Prices have firmed up by Rs 100 per quintal (Rs 4,750 per quintal on Monday) in Kochi and it is expected to increase as the demand for oil increases in the festival season.

Supply of coconut is plentiful, but the heavy rains have slowed down copra production and its transport. It is the peak season for coconut in Tamil Nadu, Karnataka, and Andhra Pradesh. The season ends in Kerala by June-July.

According to traders, the price of coconut oil could breach the Rs 5,000 per quintal mark if the rains continue unabatedly. Demand for coconut oil increases substantially before the Onam festival in Kerala and given the supply constraints, the prices are likely to increase.

The state government's decision on removing tax on coconut oil and copra has also helped the market stay firmer. The Kerala government had initially removed the 4% Vat on oil but retained the purchase tax on copra, which hurt the millers largely. The millers were offsetting the tax on copra while paying Vat on the oil.

Millers stayed away from the market for some time, as they could not take the impact in a highly competitive market.