Singapore, Oct 23 - Cocoa grinders in Asia, which account for 16 percent of global output, are desperate to sell their products as consumers curb purchases on fears that a global economic meltdown could slash demand for chocolates.
The cocoa butter ratio, a key indicator of demand, has dropped more than 7 percent to 2.40 times London futures in the last two weeks, when demand for cocoa products normally picks up ahead of Christmas and New Year celebrations..
"Buyers prefer to wait and see. They also feel uncertain," said Lukas Jasman of PT Bumitangerang Mesindotama, which is Indonesia's third-largest cocoa grinder.
Grinders across Asia have reported declines in sales in recent months, which forced factories to cut butter ratios despite a recent sell-off in London futures. Butter prices are determined by multiplying the ratio with related contracts in London but the bean and the product market usually move in opposite directions.
London's March cocoa contract ended 27 pounds higher at 1,290 pounds a tonne on Wednesday, having tumbled to an eight-month low at 1,234 pounds on Tuesday after funds dumped soft commodities due the gloomy outlook on global economies.
"What we are witnessing is more of a market knee-jerk reaction, I feel," said Yee Chow Boi, honorary secretary of the Cocoa Association of Asia, adding that grinders could also cut output in anticipation of slowing demand.
"Some factories which have been around for a long time still have long-term customers to deal with, so I don't think they will stop completely. Those factories that do not have long-term customers, they will be the first to be affected very badly."
When processing beans, grinders get butter and cake, which is later pressed into powder. Butter is a key ingredient of chocolates while powder is used for coatings in chocolate-making, beverages and ice cream.
There are more than 20 grinders in Asia, with a combined capacity of 600,000 tonnes. Malaysia is Asia's largest grinder.
"The crisis will, of course, affect the industry but how much, we don't know. We are going to have a set-back for a while but (consumption) will climb up again," said Azhar Ismail, director-general of the Malaysian Cocoa Board.
"People are still going to continue consuming chocolate," he said.
The International Cocoa Organization expected global cocoa output growth to fall below 2 percent year-on-year in the cocoa year to September 2009, having grown at an annualised rate of around 4 percent in the last three to five years, due to a slowdown in global economy.
Last-minute covering has helped keep powder prices between $1,600 and $1,700 a tonne in the past two weeks, but some grinders also offered the product at as little as $1,200 because of mounting stocks. "Ratios are falling, butter has no buyers and powder stocks are piling up," said a dealer in Jakarta. "This is the problem. Those who are selling products to the U.S. and Europe are definitely affected by the economic downturn. I heard the cake price is very low, at $400 a tonne."
Chocolates fly off the shelves in the main consuming regions of Europe and North America during Valentine's Day in February, Easter in the spring, Christmas at year-end and other holidays.