Cocoa Processing in Asia Seen Falling as Powder Reserves Persist

(Businessweek) – Cocoa processing in Asia may drop for a second consecutive quarter because some grinders still have stockpiles of powder after a decline in prices, according to the chairman of the Cocoa Association of Asia.

The grind, an indication of demand, may have decreased by as much as 3 percent in the three months to June from 140,062 tons in the first quarter, said Brandon Tay, who said he was expressing his own opinion. Processing may also fall this quarter from a year earlier, Tay said in a phone interview. Grindings will probably slip 3 percent to 5 percent in 2013 from 606,622 tons last year, said the association.

Companies process beans to produce butter and powder, which goes into the manufacturing of chocolates, drinks and ice-cream. Grindings produce about 40 percent butter and as much as 60 percent powder after deducting waste, said Tay. When companies increase processing to meet butter demand, they also boost stockpiles of powder. The association reports figures from Indonesia, Malaysia and Singapore early next week.

“The world is still in a shortage of butter,” said Tay, who is also chief executive officer of Guan Chong Bhd., a Malaysian cocoa processor. “Most people have some storage of powder, so they do not want to grind again just to deliver butter. Powder users are enjoying having an abundance of stocks ready for them so they don’t have to store themselves.”

Powder Stockpiles

Powder prices fell 11 percent in the second quarter, according to KnowledgeCharts, a unit of researcher Commodities Risk Analysis in Bethlehem, Pennsylvania. Rates in Europe were 1,839 euros ($2,403) a ton on June 28, down from 2,073 euros at the end of March. Butter was 2.03 times the price of futures, the International Cocoa Organization said in its May report. That compares with 1.9 times in November, it said.

Futures in New York advanced 2.8 percent to $2,239 a ton yesterday and are little changed this year.

“There is overcapacity in cocoa processing in Asia, which is pressurizing prices and margins,” said Kona Haque, a London-based analyst at Macquarie Group Ltd., Australia’s biggest investment bank. “This, along with high cocoa powder stocks, is leading to lower than expected grinding. End-use demand for chocolate products remains strong, we just need to get over this bump before things can improve.”

Most butter produced in Asia is exported to the U.S. and Europe for chocolate and the powder is used in this region for beverages, cookies and other confectionery, said Tay. While there’s “no culture of eating chocolate” in Asia, total consumption has been growing, especially in Indonesia, the Philippines and China, he said.

Indonesia and Malaysia represent about 14 percent of global bean processing, ICCO data show. The possible drop in Asia in the second quarter may be countered by expansion elsewhere.

Grindings in Europe, the biggest consuming region, probably rose for the first time in more than a year as some companies (GUAN) expanded after a slowdown, according to a Bloomberg survey. Processing in North America probably increased 4.4 percent as an improving economy spurred demand from chocolate makers, a separate survey showed.