The sudden rise in cocoa futures this week following months of weakness, coupled with good supply cover held by chocolate makers, reduced industry purchasing in Europe's cash cocoa market, traders said on Friday. "I think a lot of industrial buyers view the rise in cocoa futures as a temporary spike and that there is downward potential for futures in coming weeks," one trader said.
"Buying interest for both beans and cocoa butter was pretty thin this week as consumers are unconvinced the futures rise will hold, the chocolate industry has good bean inventories and can wait for lower prices." Cocoa futures rose more than 5 percent in the middle of this week partly on fears of delays to the start of the new mid season crop in top exporter Ivory Coast. Futures had touched a nine-month low in the previous week in turn caused by the approach of large crops in West Africa.
Price differentials for good quality Ivory Coast beans for nearby delivery were unchanged on the week at around 45 pounds over London's May cocoa contract on Friday. Price ratios for the key chocolate ingredient cocoa butter were little changed at 1.93 times the London May bean contract, with the front month ratio transferred to May after the March contract's expiry on Wednesday.
"The crop development in Ivory Coast is not bad and consumers are expecting this to again put downward pressure on futures in coming weeks, the latest news about the mid crop is good," a trader said. "I see European industry bean purchase interest when London futures are at 1,400 pounds or lower." London May cocoa was at 1,431 pounds at 1605 gmt on Friday.
"Ghana was also a heavy seller in the market this week as futures rise, perhaps an indication that producers are also expecting lower prices as the mid crop comes in," a trader said. Futures dealers also noted selling by Ghana during the week. "There is talk Ghana sold a large volume of between 30,000 to 50,000 tonnes of its new crop this week as futures rose," a dealer said. Cocoa powder demand is low and prices on a downward trend, traders said. Cocoa powder was quoted nominally unchanged on the week at 2,300 euros a tonne but with trades of under 2,000 euros a tonne this week spoken of. Prices had been around 2,500 euros a tonne at the end of 2012.
Powder is widely used in cakes, processed foods and chocolate flavoured drinks. The weaker powder market would encourage processors to melt stocks of stored butter in block form for sale rather than grind beans. Grinding beans produces both powder and butter but powder is currently difficult to sell, a trader said. Traders said the Easter sales period will be monitored closely to see if chocolate can survive the economic slowdown in several countries.