Hamburg, April 9 - Germany's first-quarter 2009 cocoa grind fell 21.3 percent on the year to 80,401 tonnes, the association of confectionery producers BDSI said on Thursday, reflecting a slump in demand from chocolate makers due to the economic crisis.
This followed a fall of 17.2 percent on the year in the fourth quarter of 2008.
Germany grinds about a third of the cocoa beans processed in the European Union and Switzerland and the German grinding figures are a key indicator of the state of the chocolate and confectionery industries.
German cocoa traders and cocoa grinders said the decline reflected a fall in physical demand from chocolate makers, especially from East Europe and Russia, regions hit especially hard by the global economic crisis.
"East Europe is a vital market for our products and new orders have come to a virtual standstill," one German cocoa trader said. "This is being reflected in a dramatic fall in grindings."
Cocoa grinders process beans into butter and cake, which is then further processed into powder. Cocoa butter is a key ingredient for chocolates, while powder is used in coating in chocolate making, biscuits, ice cream and beverages.
Germany exports large volumes of semi-finished cocoa products including butter and cocoa powder which are then used for local chocolate and confectionery output.
"The fall in grindings have taken place because of a huge cut in demand," the head of a German grinder said. He estimated product orders were down 20 percent on the year.
FRUSTRATION
"East European buyers are facing enormous currency devaluation while London cocoa futures have risen sharply since November 2008 hugely increasing prices for products. Profitable production is not possible for many companies," the German cocoa trader said.
"There is frustration that the high London market is not reflecting the depressed state of fundamental demand."
Cocoa futures have bucked the global trend and nearby London contracts <0#LCC:> have risen from around 1,300 pounds a tonne in October 2008 to 1,829 a tonne at 0851 GMT on Thursday.
The economic slowdown meant German chocolate demand was being transferred from high-priced brands with high cocoa content to cheap supermarket own brands with a high level of cocoa substitutes including vegetable oil.
"Industry is processing beans largely because old cocoa powder contracts need to be processed," another trader said. "Butter production is largely going into stocks."
Traders said they believed between 50,000 and 70,000 tonnes of cocoa butter was in European inventories, up from 10,000 to 15,000 tonnes in normal times.
One German cocoa processor commented: "We are currently producing cocoa powder, but this is largely old contracts signed in 2008.
"New butter orders are at a virtual standstill. Output is going into stocks."
German industry and trade sources said there was increasing frustration at recent great difference between the German statistics and Europe-wide grinding figures provided by the European Cocoa Association.
"European fourth quarter 2008 grinding figures rose 0.1 percent on the year while Germany's collapsed by 17.2 percent," a German grinder said. "I cannot see how the European figures can rise in the face of such a large German drop.
"If the upcoming European figures are very out of line with the German, people are going to start asking why."