Unease over Ivory Coast cocoa reforms will limit the downward
move in prices, Barclays Capital said, even as futures looked to end a negative
week on a positive note, underpinned by a fresh outbreak of violence in the African
country and by a forecast of a world production deficit.
Cocoa prices have suffered a reversal this week, dropping 4%
in London as of Friday's low and more than 5% in New York, as rain eased
concerns over the impact of dry weather in production in West Africa, the top
producing region, besides
However, "the downside risk is limited", BarCap, said,
warning of the "potential disruption in the coming weeks" from a shake-up by Ivory
Coast to its cocoa sector, the world's biggest, which will see a government
marketing board, the Coffee and Cocoa Council, handle the country's sales.
Macquarie has already warned of the potential for an upward spike in prices if the council, which has sold most of the 2012-13 harvest
ahead a prices below recent highs, offers growers too poor a payout, prompting
them to smuggle crop to other markets.
And BarCap said that "there may be some short-term supply
pains" ahead given the discontent at some of the council's operating methods.
"The council's complex pricing system is viewed as lacking transparency
and not fully reflecting the costs that buyers face," BarCap analyst Kate Tang
said, flagging "unknown costs such as the price to pay for unauthorised
"There remain concerns about how cocoa deliveries will be
guaranteed and whether the government has suitable storage facilities."
A big bone of contention revolves around bean quality, and
rules which have stripped buyers of power to discount prices in line with grade
of crop delivered.
"With the new system, discounting is banned, leaving
exporters without a means for quality control," Ms Tang said.
'There may again be a
lot of smuggling'
Furthermore, Ivory Coast cocoa merchants are threatening to
block supplies, or return to smuggling beans through the country's porous
borders, if a prolonged dispute with officials over transport costs is not
Ivory Coast producers and merchants have a history of illegally
transporting beans to Ghana when prices are higher in the neighbouring country.
"If the price guaranteed by the Coffee and Cocoa Council is
not as good as that offered by Ghana or other nearby West African countries, there
may again be a lot of cross-border smuggling," Ms Tang said.
The comments came as three people were killed in Ivory Coast
in renewed attacks on army and police buildings in Abidjan, the first since an
outbreak of violence in August.
The government has blamed supporters of Laurent Gbagbo, the former
president, for the unrest, although the Gbagbo camp has rejected the accusations.
Separately, the International Cocoa Organization, in its
first estimate for 2012-13, forecast a world production deficit, thanks to the dearth
of rainfall in West Africa, but declined to reveal numbers.
Cocoa for December closed up $2 at $2,521 a tonne in New
York, for only its third day of gains in the last 11 sessions, while easing $5
to £1,613 a tonne in London.