Asian cocoa powder prices up as first quarter grindings seen lower

Butter ratios and powder prices strengthened in Asia this week as buyers banked on grinding results being lower in the first quarter driven by product prices that remain below cost for much of the grinding industry. The global cocoa market has been hit by high bean prices and sluggish economic conditions affecting chocolate demand in top consumers Europe and the United States, as well as in Asia.
Asian grinders have also been faced with a shortage of beans and excess grinding capacity, pushing bean prices up and thinning grinders' profit margins into negative territory.
Butter ratios, a key indicator of demand, were quoted at 1.95-1.98 times London futures, up from 1.90-1.95 in March. Powder, meanwhile, was up slightly to between $2,000 and $2,300 per tonne, up from $1,900 to $2,300 last month.
"People in general think the upcoming grind will see a general reduction. They expect efforts by the grinding industry to reduce excess supply in the market," a Singapore-based trader said referring to Q1 grinding results expected to be announced later this month.
Cocoa processing in Asia dropped to 141,396 tonnes in the fourth quarter of 2014, its lowest in at least three years. Traders expect the decline to continue amid the currently depressed confectionary market.
"Prices and the ratios are just below the break-even point for most people," the trader added. "It's not profitable for grinders at the moment."
London cocoa bean futures for May inched up 3 pounds, or 0.2 percent, to close at 1,947 pounds ($2,857) a tonne on Thursday.
In Indonesia there are now at least eight inactive cocoa grinders with a combined capacity of 350,000 tonnes, according to Zulhefi Sikumbang, chairman of the Indonesian Cocoa Association (ASKINDO).
"These will not be revived. It's difficult for them to grow again. These industries will just become scrap metal," Sikumbang told Reuters, noting that bean exports from world No 3 producer this year could drop to their lowest since at least 2001.
According to Mars, Indonesia will produce around 380,000 tonnes of cocoa beans in 2015, less than in 2014, amid continuing declines in output of the commodity.
Indonesia's cocoa bean exports from its main growing island of Sulawesi rose 60 percent to 2,567.52 tonnes in March from 1,600 tonnes a year ago. Lampung exports were also up.