Asian cocoa prices up due to currency, supply

Asian cocoa prices up due to currency, supply

KUALA LUMPUR (Reuters): Cocoa prices remained firm in Malaysia and Indonesia yesterday, with tight supply and weaker currencies prompting gains, regional traders said.

Asian cocoa prices were higher despite falls in the New York market on Tuesday, they said.

"I think production will be less towards the end of the year. This is mainly due to the dry weather and the El Nino effect," an official at the Malaysia Cocoa Board said.

"We estimate output to be around 107,000 tons for this year," he said. In 1996, Malaysia produced 122,000 tons of cocoa.

A drought induced by the El Nino weather phenomenon has destroyed most of Malaysia's mid-crop between October and December, leaving virtually no cocoa beans to harvest in the current period, traders said.

The industry source said the weather may return back to normal in 1998 and output will probably increase to 120,000 tons. "We hope rainfalls will be evenly spread across the main cocoa growing areas of Tawau," the official added.

"Demand is good. Local grinders are finding it difficult in getting cocoa beans supply. They have to depend on imported beans from Indonesia, Papua New Guinea and some from Ivory Coast," he added.

Traders said cocoa prices in Malaysia have also been kept high by the weakness of the Malaysian ringgit against both the U.S. dollar and sterling.

"I think cocoa prices in Malaysia were trading above 5,000 ringgit," said a trader in East Malaysian state of Sabah.

On Wednesday, the Malaysian Cocoa Board (MCB) quoted the SMC 1A grade out of Tawau at an average of 5,525 ringgit ($1,509) a ton, up 307 ringgit from a week ago.

The SMC 1B grade from Tawau was priced an average of 5,475 a ton, up 300 ringgit from a week ago.

Malaysia's ringgit was quoted at 3.6650 to the dollar on Wednesday morning against 3.65 on late Tuesday.

"Although prices fell in New York, local prices are high because of the rupiah factor," said an Indonesian trader from Ujungpandang, capital of the key growing region of South Sulawesi.

Traders said South Sulawesi was getting steady rainfall in the aftermath of a severe drought linked to the El Nino weather phenomenon, adding that flowering had begun in some parts.

"There are signs of flowering in some parts, but it is still in the early stages," one Indonesian trader said.

"If rains are sustained, flowering will be more uniform in January and February."

"The harvest should begin by April and hopefully peak between July and September," he added.

Traders said arrivals of small-sized beans were rising but that they were reluctant to purchase them.

"Unless we have an agreement with our (overseas) buyers, players will not be keen on buying small-sized beans," one trader said. "I have such an agreement, and am buying in small quantities."