Cocoa Processing in Asia Declines 17% as Global Demand Shrinks

(Bloomberg) – Cocoa processing in Asia dropped in the fourth quarter as slowing global growth and a surge in prices to a three-year high in September reduced demand for the beans used to make chocolate.

The grind, an indication of consumption, declined 17 percent to 141,396 metric tons from 170,684 tons a year earlier, the Singapore-based Cocoa Association of Asia said in an e-mailed statement today. Full-year grindings fell 3.9 percent to 614,461 tons from 639,505 tons in 2013. The data are for Malaysia, and members in Singapore and Indonesia.

Cocoa in New York jumped to the highest since March 2011 in September as the Ebola outbreak in Africa threatened Ivory Coast, the top grower. The world economic outlook was cut by the International Monetary Fund this month amid concern growth in the U.S. and lower fuel prices may not offset the slowdown from Europe to China. Processing in the last quarter also fell in North America and reached its lowest for the period since 2005 in Europe, which represents 38 percent of the world grind.

“Globally, chocolate demand has started to shrink and you have to blame that entirely on the higher prices,” Jonathan Parkman, co-head of agriculture at Marex Spectron Group in London, said by phone. “We’re unlikely to see much of a recovery on demand unless prices come off significantly from where we are now.”

Three-Year High

Cocoa fell 1.8 percent to $2,801 a ton on ICE Futures U.S. on Jan. 22. Futures reached $3,399 on Sept. 25, the highest since March 2011, and climbed 7.4 percent last year after a 21 percent increase in 2013.

“Manufacturers generally have something like six months forward cover,” Parkman said. “Today’s prices won’t really feed in the final price for six months. So when you’re looking at the prices that caused the drop in demand during the fourth quarter, it was prices that were actually prevalent during the second and third quarter.”

Bean processing in Europe declined 7.4 percent to 323,061 tons in the fourth quarter, European Cocoa Association data showed on Jan. 15. North American grinding lost 2 percent in the October-December period, according to the National Confectioners Association.

“Europe and America are pretty mature markets for chocolates,” said Parkman. “So it’s unlikely we’re going to get any massive growth in those areas, but the emerging markets, particularly Asia, hold the key to increasing demand over the next 10 years.”

Processing Shift

Grindings in Indonesia, the third-biggest grower, jumped by almost 70 percent in the three years to 2013-2014, International Cocoa Organization data show. The boost comes from new plants set up by companies such as Olam International Ltd. and Cargill Inc. World processing climbed for a fifth year to a record 4.27 million tons in 2013-2014, with about 14 percent coming from Malaysia and Indonesia, the ICCO estimates.

While demand for chocolate in Asia was the world’s lowest per capita in 2013, the market will grow at almost twice the global rate over the next five years, according to researcher Euromonitor International Ltd. The market size for chocolate confectionery in the Asia Pacific region may expand 4.5 percent in 2015, more than the global increase of 2.6 percent, Euromonitor data show.

“Rising incomes in emerging markets should continue to provide growth opportunities,” Hamish Smith, a commodities economist at Capital Economics Ltd. in London, said in an e-mailed reply to questions from Bloomberg. “But we don’t expect consumption levels will reach that of Europe or North America soon, meaning these two regions will continue to be important for some time to come.”