Cocoa prices fell on Tuesday to within in ace of setting a fresh 2010 low, despite data showing the strongest growth in demand for the chocolate ingredient in four years.

Europe's cocoa grind hit nearly 381,000 tonnes in the first three months of 2010, the European Cocoa Association said, after a survey of groups including Archer Daniels Midland, Barry Callebaut and Cadbury.

The rise of 8.1% compared with the first quarter of 2009 represented the strongest growth since the January-to-March period in 2006.

Growth was particularly strong in Germany, which accounts for more than one-quarter of Europe's total grind, and where cocoa use jumped 10.3% in the latest period, boosted in part by an increase in capacity.

Bear points 

Nonetheless, cocoa closed lower on both sides of the Atlantic, touching £2,100 a tonne in London at one point, within £5 a tonne of overhauling an early-March nadir. New York cocoa for May was down more than 3% at its day low.

"The grinding figures published this morning are expected to have been well and truly priced into the market," Stephanie Garner, at Sucden Financial, said.

Analysts at Commerzbank forecast the grind may have been boosted by one-off rebuilding of inventories by companies who let stocks run down during the uncertainty of the global economic crisis.

"During the second half of 2009, after the collapse in demand in the first half, a gradual restocking process had started, which is now about to level off," Commerzbank said.

"Supply prospects of cocoa are relatively positive," the bank added, noting the potential for a global production surplus in 2010-11 after a number of deficits in recent seasons.

'Sell stops unearthed' 

Furthermore, technical effects had an impact on prices on Tuesday, as fund sales triggered some automatic sell orders, deepening the decline.

"There has been some liquidation by funds, which unearthed some sell stops," Ms Garner told Agrimoney.com.

The levels of fund selling were not unusual, she added.

"At this time of wheat, when there is not so much physical supply around, the importance of fund moves is heightened in terms of causing volatility."