Asia Cocoa-Grinders closing as excess capacity pushes prices below cost

JB Foods

24/11/2014 10:36

* Peak Christmas buying period 'didn't happen' 
    * Buyers bidding below cost for many producers 
    * Smaller grinders have closed down 
    * Excess stocks, demand balance seen improving in Q1 2015 
 
    By Fergus Jensen 
    JAKARTA, Nov 24 (Reuters) - With Asian cocoa butter ratios 
at 16-month lows, and surplus stocks and weak demand expected to 
continue into 2015, smaller grinders in the region are cutting 
output and closing as their margins shrink, traders said. 
    Butter ratios, a key indicator of demand, were quoted 
between 2.1 and 2.15 times London futures  0#LCC: , their lowest 
since July 2013 although roughly unchanged since two weeks ago 
 COCOA/ASIA1  
    "Most of the cocoa veterans in the industry are saying it 
has never been this bad. We've seen a lot of the small 
(grinders) close down and stopping production completely," one 
trader said, referring to plants with annual output of between 
30,000 and 50,000 tonnes.  
    "(Buyers are) waiting for the price to go lower (but) 
sellers can't accommodate their prices because we won't make any 
money. It's a wait-and-see situation, stuck in the same game." 
    The regular Christmas peak demand period in October and 
November "didn't happen", the trader said, adding that demand 
had been quiet since mid-year as end-users and trading houses 
were only buying to cover for the short term. Demand was 
expected to continue week until mid-January. 
    "Nothing has been happening. It's weird that it's slow at 
this time of the year because usually in November it's quite 
busy with people buying for Valentine's Day." 
    Most cocoa grinding companies were no longer operating at a 
profit, a second trader said, noting excess capacity and stocks 
plus a slowdown in grinding over the past three months that was 
expected to continue until the end of 2014, unless bean prices 
declined or powder or butter prices improved sooner. 
    "In the short term you will see a big slowdown in grinding 
to reduce the excess stock in the market," the trader added, 
noting that several buyers had been snapping up forward 
positions on butter prices that were stabilising below $7,000 a 
tonne. 
    The excess stocks of powder and butter were not expected to 
be absorbed into the market until the first quarter of 2015, the 
trader said.  
    The reduction in grinding output could push cocoa bean 
prices lower, the trader said, without providing further detail. 
    Cocoa powder prices were between $1,800 and $1,900 per 
tonne, another trader said, up slightly from between $1,750 and 
$1,850 a tonne two weeks ago, although there wasn't much 
likelihood of a further improvement in the short term. 
    "The chance of powder prices going up is still minimal so 
the only hope now is terminal prices going down or end-users 
starting buying."  
 
 (Reporting by Fergus Jensen; Editing by Alan Raybould) 
 ((fergus.jensen@thomsonreuters.com; +62 21 2992 7604; Reuters 
Messaging: fergus.jensen.thomsonreuters.com@reuters.net)) 
 
Keywords: COCOA PHYSICALS/