Asia cocoa butter premiums hit 7-year high

SINGAPORE: Small volumes of cocoa butter traded at the highest premiums in seven years in Asia this week as chocolate makers chased cargoes ahead of the year-end festive season, dealers said on Friday.

But some grinders had sharply cut the price of cocoa powder to spur demand, raising doubts about the third-quarter performance of Malaysian processors, whose figures are due for release on October 17.

Butter ratios rose to 2.80 times London futures from 2.75 times last week, according to Reuters monthly data.

Powder hit a low of US$1,400 a tonne from US$1,700 last week, although there were also offers at much higher prices.

Cocoa beans, when ground, yield roughly equal parts of butter and powder, which is used in cakes, biscuits and drinks.

The price of butter, which gives chocolate its melt-in-the-mouth texture, is determined by multiplying the ratio with relevant contracts in London and New York futures.

"Cocoa is really a very tough industry, and the management is paying more attention to palm oil now. We are thinking whether or not to continue with cocoa," said an official with a grinder in Malaysia, that also owns palm oil plantations.

"We've sold off our butter and now we concentrate on selling powder. The next bean procurement will depend on how the ratios go. This industry is such a gamble. When the ratios go up, powder will come down, regardless of your operating costs."

Butter ratios have soared to multi-year highs in Asia, Europe and the United States as chocolate makers replenished stocks and after the year's sluggish market and high powder inventory prompted grinders to cut capacity.

Dealers noted several deals for cocoa powder in recent weeks, but the drop in prices from US$4,000 a tonne in January was a indication that grinders were struggling to sell the product.

Grinders can end up with mountains of inventory of either product if sales are slow. Next week's grindings data from Malaysia could also offer clues to how processors deal with a surge in global cocoa prices.

Cocoa grindings in Malaysia fell 3.1 per cent on the year to 72,191 tonnes in the second quarter of 2013, which dealers attributed to tighter supply of beans from Indonesia.

"Whenever we talk, powder prices are falling," said a dealer in Singapore. "I think the price range of US$1,400 to US$1,500 is quiet and people are buying, but the volumes are not good."

The grinder in Malaysia said he sold powder at US$2,200 including freight to India last week, but other dealers said it was likely to be a one-off deal.

Chocolate sales normally surge in the main consumer regions of Europe and North America during Christmas, Valentine's Day and Easter. In the United States, chocolate makers are also preparing for Halloween.