High powder stocks may slow Asian cocoa grinding after 2014 growth

Wed Aug 13, 2014 11:46pm EDT

* Q3 and Q4 grindings likely to be positive

* New plants in Indonesia start production, will boost output

* Outlook for powder weak due to high inventory

By Lewa Pardomuan

SINGAPORE, Aug 14 (Reuters) - Cocoa processing in Asia will increase in the remaining months of 2014 as the region drives global chocolate demand and new plants start running, dealers said on Thursday, but mounting powder stocks will force grinders to slow down next year.

Robust butter demand has sent prices to multi-month highs above $8,000 a tonne, but powder purchases from the food and beverage industries have yet to catch up with a jump in output as Indonesia overtakes Malaysia as Asia's largest grinder.

Cocoa beans are processed into roughly equal parts butter, which gives chocolate its melt-in-the-mouth texture, and powder, which is used in cakes, biscuits and drinks. Grinders do not reveal the size of their powder stocks.

Second-quarter grindings rose 5.2 percent to 161,805 tonnes, the largest volume since Asia processed a record 170,684 tonnes in the fourth quarter of 2013, as multinational companies shift operations to Indonesia to secure bean supply.

Indonesia is the world's third-largest cocoa producer, although some way behind Ivory Coast and Ghana.

"Margins are under severe pressure because of the added capacity in Asia. My modest estimation is that more than 300,000 tonnes of pressing capacity has been added in Asia in the past four years," said a source at a major grinder in Asia.

"If things do not pick up in the next six to 12 months, I would say you will see people slowing down, going out of business, or you will see further industry consolidation."

Installed capacity in the Asian grinding countries of Indonesia, Malaysia and Singapore is now a little over 1 million tonnes, according to Reuters calculations.

MEETING NEXT YEAR'S ORDERS

Dealers still expect growth in grinding in the third and fourth quarters as grinders meet next year's contracts and new plants start up in Indonesia.

Chocolate confectionery demand in Asia-Pacific is forecast to grow more than 5 percent in 2014, according to market researcher Euromonitor International, while consumption in Western Europe and the Unites States stagnates.

"A rise of 5 percent in Asia in the third and fourth quarter is considered too conservative still," said Lukas Jasman, chief operation officer of BT Cocoa, which has an installed capacity of 150,000 tonnes in Indonesia.

"Grinders usually don't sell products on the spot. The rise in Asian grinding is unavoidable due to the contracts that were booked last year. What I can see is that long-term growth for Asian demand in chocolates is definitely there."

Indonesia's grinding capacity will jump 85 percent to 600,000 tonnes by the end of this year, boosted by new plants for firms such as Cargill, Barry Callebaut, and Malaysian Guan Chong Berhard

Chocolate makers will step up cocoa butter purchases in September to meet Christmas demand, but the outlook for powder remains weak. Prices have already fallen more than 30 percent to $1,500 a tonne since January due to ample supply.

"When you invest in another country, you have to run your plants to maximise your investment. But there will be a slowdown, although it's not immediate. Powder will be under pressure," said a senior dealer in Singapore.

"I think Q3 grindings may see growth of 1 to 2 percent, while Q4 could see a jump of 3 to 4 percent." (Editing by Alan Raybould)