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Olam forecasts chocolate feast after cocoa glut

Singapore-based Olam, one of the world’s biggest food traders, is predicting a revival in chocolate consumption in Europe as prices fall on the back of a bumper west African crop.

Cocoa is one of the worst performing commodities this year, with the London benchmark trading at its lowest since 2013 amid concern over a glut in supply in west Africa, the key growing region.

Sunny Verghese, Olam chief executive, said: “There was a decline in chocolate consumption in Europe by 3.1 per cent. Now that ingredient prices are very low we expect a revival in 2017.”

Buoyed by a strong performance in its cocoa and coffee business as well as staples such as rice and sugar, Olam on Tuesday reported profit of S$351m (US$250m) for 2016, returning to the black after booking a S$115m loss in 2015.

Mr Verghese predicted “tough trading conditions” for Olam’s cocoa trading business this year, although the fall in cocoa bean prices means that margins in its processing business will be robust, he added.

Olam has shifted from being mainly a trader of cocoa beans to one of the world’s biggest processors — converting beans into cocoa butter and powder — after buying the cocoa business of Archer Daniels Midland for $1.4bn in 2014. 

“We have sold most of our [cocoa] production in terms of the first half,” Mr Verghese said. “With the significant decline in bean prices, processing margins look quite healthy. Overall as an integrated business we believe we can navigate this.” 

The price of cocoa has also been hit by confusion over exports from Ivory Coast, the world’s biggest producer of the crop.

Some local exporters who bought cocoa — betting that prices would rise — have defaulted on contracts, leaving beans piled in warehouses. 

The New York cocoa contract hit an eight-year low of $1,918 a tonne this month.

Demand was damped last year after the cocoa price rallied when drier weather dented output. In response, some manufacturers shrank the portion size of chocolate bars as the price of the main ingredient rose.

Olam reported profit after tax and minority interests of S$102.2m for the fourth quarter of 2016, compared with a fourth-quarter loss of S$269.4m the year before, when it wrote down its investment in PureCircle, a Malaysian sugar substitute maker. 

Olam’s full-year earnings before interest, tax, depreciation and amortisation grew 10.8 per cent year on year to S$1.2bn.

Singapore state investor Temasek is the majority shareholder of Olam, while Mitsubishi Corporation holds about 20 per cent of issued capital.

Olam shares were flat at S$2.06 in Tuesday afternoon trading.

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