European cocoa demand rose over the last three months, where investors were expecting stagnation.
The European cocoa grind, the volume of cocoa beans being processed into butter and powder, rose by 2% over the past three months, to 334,000 tonnes according to the European Cocoa Association.
Cocoa grinding is treated as a proxy for consumer demand for cocoa products.
Demand recovery
This marks the second three month period in which European cocoa production has risen, following a straight twelve months of declining demand.
European cocoa grinding is now at its highest level since the start of 2014.
But cocoa prices in London trimmed gains, after Tuesday’s rally.
Increased profitability
The rise in European demand came despite a sharp increase in cocoa pricing over the same period.
Cocoa has bucked a bearish ag commodities trend, helped by disappointing production in world’s second largest grower Ghana.
Cocoa beans were the best performer in the Standard & Poor’s GSCI index of raw materials.
Lower inventories of cocoa butter, which is added to chocolate to improve mouthfeel, as well as being used in cosmetics, have supported margins for grinders in recent months.
German boom
Data from the Association of the German Confectionery Industry (BDSI), suggests a resurgence in German grinding drove the strength of demand.
German production was seen up 16% year-on-year, at 101,000 tons.
But grinding data for North America, which will be released on Thursday, is expected to show a decline of up to 10% from last year’s record demand.
Malaysian slowdown
And data released by Malaysia on Tuesday suggested that Asian grinding figures, to be released next week, may be weaker as well.
Malaysian grinding was seen down 20% year-on-year, at under 50,000 tonnes, although up from last quarter.
“Grinding has been on the decline for years in Malaysia, which produces only little cocoa itself,” said Commerzbank.
Malaysia’s market share is being eroded by increased grinding in producer countries.
“Its status as the largest Asian cocoa grinder has been taken over by Indonesia, which is the largest Asian cocoa producer and has supplied Malaysia with cocoa beans so far,” said Commerzbank.
Ivorian competition
And the Ivory Coast, the world’s top producing country, superseded the Netherlands as the world’s top grinder as well, in the crop year just finished.
Asia is a net exporter of cocoa powder and butter, to European and North American markets, so an increase in African grindings would primarily eat into Asian market share.
December cocoa prices in London were down 0.2% at £2,137 a tonne in morning deals in London, after rising 2.4% on Tuesday.
