Singapore, July 26 - Chocolate makers are snapping up cocoa to meet rising demand in the summer holiday buying season while the deadly floods in Indonesia is making Asia's grinders anxious about supplies over the longer term.
The ratios for butter, a key ingredient for chocolate, were steady from last week at 2.60 to 2.64 times the London futures price for nearby shipment on Thursday. Butter prices are determined by multiplying ratios with related London contracts.
"The demand for butter is hot and there's a tight supply for nearby. I think desperate buyers will be willing to buy butter at 2.64 to 2.65 times," said a dealer in Singapore.
The second position in London futures, December, ended 21 pounds a tonne lower at 1,084 pounds on Wednesday in a technical correction, having rallied to a four-year high of 1,146 pound in early July on crop worries in the Ivory Coast, the world's leading producer. Dealers said a move by grinders to slash output in order to reduce powder stocks had started to bear fruit, creating a tighter supply for cocoa products.
When processing beans, grinders also get cocoa cake, which is later pressed into powder and used in confectionary, beverages and ice cream. Sales of powder had been slow in recent months because consumers were aware of the high stocks held by grinders.
The price of powder was steady this week at $1,000 a tonne on a free on board basis but higher than $950 quoted last month.
"The demand for powder is there. It's growing and I think buyers are quite aggressive," dealer in Singapore.
"On the bean side, supply from Sulawesi keeps coming in, and I don't think the floods have any impact on shipments so far. Grinders' warehouses are full," he said.
Indonesia, the world's third-largest cocoa producer, sells beans to grinders in Malaysia, Singapore, China, Europe, Brazil and the United States.
The Indonesia Cocoa Association said on Wednesday the country's cocoa output could fall to around 530,000 tonnes in 2007 from 590,000 tonnes last year because of the bad weather in Central Sulawesi, a key growing area.
Central Sulawesi province, along with South and Southeast Sulawesi provinces, account for about 75 percent of the country's total cocoa output.
Days of heavy rain caused landslides and floods up to three metres high, submerging hundreds of homes in Central Sulawesi and killing around 60 people.
"We've been offered beans from Sulawesi at $150 a tonne under New York. I think that's expensive. We may want to buy at $180," said a grinder in Malaysia, which is Asia's largest grinder.
"Butter buyers have been making inquiries in the past two days but I haven't secured any deals. We may expect something to happen in the next two weeks," he said.
The New York Board of Trade key September contract fell 2 percent, or $41 to $2,059 per on Wednesday, having rallied on Tuesday on talk of security concerns in Ivory Coast.