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Cocoa butter at 3-year peak on Ivory Coast subsidy woes

cocoa 400SINGAPORE: Cocoa butter, a key ingredient for chocolates, extended gains to its strongest ratios since early 2009 on year-end demand and worries that Ivory Coast's decision to remove a subsidy to local grinders could hurt output, dealers said on Thursday.


Butter was traded to European and Asian buyers this week at 1.90 times London futures , up from 1.85 times last week. Butter is a key ingredient for making chocolate, providing its melt-in-the-mouth texture.


"Demand is coming in from every corner, but people are not offering much because the butter ratio simply goes higher every week," said a dealer in Singapore.


Ivory Coast, the world's largest cocoa producer, has abolished a 20-year-old subsidy to local grinders under which they benefited from a reduced export tax, a move that could jeopardise future investment.


The move came even as the government is aiming to grind half of its cocoa bean production locally by 2015. Currently around 35 percent of beans are processed locally.


"The main problem is the subsidy move in Ivory Coast. Everybody thinks grinders there will shut or slow down. They have got a subsidy from the government for a while, but suddenly it has been withdrawn," said a dealer in Malaysia.


"So the operation over there is no longer viable. People are panicking. Buyers in Japan, South Korea and Europe are in the market."


In 2010, Ivory Coast became the world's top cocoa grinder with a capacity of 532,000 tonnes, turning beans mainly into cocoa butter and powder


More chocolate makers are also buying butter from Asia because of tight supply for nearby delivery after the economic crisis in Europe cut grindings there by 16.2 percent in the third quarter from the same period last year to 316,676 tonnes.


Ratios in Europe were at 2.08 times London futures for November/December delivery. Ratios in Asia, which have risen as much as 90 percent this year, were last around these levels in early 2009, when they were offered at about 2.0 times London futures.


When cocoa beans are processed they produce roughly equal parts butter and powder, which is also used in chocolate, beverages and ice cream.


Since the two products move in opposite directions, higher butter ratios weigh on cocoa powder, which was offered at between $3,000 and $3,300 a tonne, down from between $3,300 and $3,400 two weeks ago.


"There are always deals, but it's just that the powder market is not moving much," said another dealer in Singapore.


Chocolate sales normally surge in the main consuming regions of Europe and North America during the key holidays of Christmas and Valentine's Day.

Copyright Reuters, 2012


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