Cocoa markets boil as Ivory Coast rebels advance

The global cocoa market is heating up on growing fears of supply disruption after rebels captured a key cocoa centre in top producer Ivory Coast, industry sources said on Monday.

But grinders remain cautious despite an improvement in cocoa butter prices.

Rebels in Ivory Coast captured the key cocoa industry town of Daloa on Sunday, near the opening of the main harvest of the 2002/03 (Oct-Sept) season, a time when marketing should be reaching its height.

Traders said this could instantly block about a third of the country’s output and disrupt buying well beyond the town. Rumours that Daloa had fallen had driven world prices near to 17-year highs last week.

“How long the disturbances are going to happen, nobody is going to say. I think the market is very sensitive about that, especially (because) the festive season is coming,” said Anifah Aman, Malaysia’s deputy primary industries minister.

“It’s certainly good for the farmers, especially the small holders, but as for the grinders, I am not sure,” he told reporters on the sidelines of a cocoa seminar.

December contract in London cocoa futures touched 16-¾ year highs at 1 635 pounds a ton on Friday due to fears of disruptions in the cocoa flow.
But it ended 12 pounds lower at 1 593 pounds on profit-taking.

Industry sources said spot ratio for butter, the main ingredient for chocolate, has defied normal trading practice and firmed at 1,60-1,65 times London this month, up from 1,40-1,50 times in mid-September.

Normally, buyers will depress the ratio each time London prices go up so that they can buy the product at old prices. Some grinders believed the ratio could weaken again after chocolate manufacturers met their requirements.

Chocolate makers traditionally jack up production to meet demand for the Christmas and New Year holidays. They also produce more chocolates to meet demand during the Halloween, Valentine’s Day and Easter celebrations.

“I don’t see a limit for bean prices to go up, but this depends on the situation in Ivory Coast,” one grinder said.

“Demand for Christmas and New Year is there, but it’s a normal practice. It’s too early for grinders to be happy about rising prices for butter, but it’s good that we are no longer operating at a negative margin,” he added.

Kelvin Tan, chairman of the state Malaysian Cocoa Board (MCB), said local grinders could expect to reap some margins after operating at a loss for months because of poor ratio—blamed on a stock overhang.

“This is healthy to have this type of ratio. It’s healthy because there’s a margin. With this ratio, I think a lot of people will go back to business again,” Tan said.

“But if the ratio starts to collapse… people will start to stop processing. This is supply and demand.”

Industry sources said half of Malaysia’s 10 grinders were running but not at full capacity because of poor margins. Malaysia has installed capacity of 165 000 tons a year, making it the world’s eighth largest grinder.

Some traders in Indonesia said dry weather in the world’s second largest producer might also boost the market.

“London touched 2 000-2 400 pound in 1984 because of supply deficit for three consecutive years. There was no problem then in Ivory Coast,” said one trader in Makassar, capital of the key growing area of South Sulawesi.

“I don’t see reasons why prices can’t touch that level again because we still have supply deficit plus problems in Ivory Coast. Sulawesi is so dry. I think cocoa trees here have been under tremendous stress,” he added.

Mid-crop harvest is currently at its peak but daily arrivals in Makassar, the key port in Sulawesi, only hit around 300 tons, about half the volume for the same time last year. - Reuters

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