Europe's cocoa grind to dip as chocolate market shrinks

* Third quarter grindings seen down 15-20 pct

* Cocoa processors cut output, reduce factory hours

* Mintel sees W. Europe choc market shrink 5 pct on yr

By Sarah McFarlane

LONDON, Oct 10 (Reuters) - Falling chocolate demand inEurope due to the economic crisis is expected to cut thecontinent's cocoa grinding in the third quarter.

Grindings, an indicator of demand, are expected to fallbetween 15 and 20 percent from the same period in 2011, analystsand traders said.

This would mark the second consecutive quarter of sharpfalls, after Europe's second-quarter cocoa grind was down arecord 17.8 percent, Brussels-based European Cocoa Association(ECA) data showed in July.

"I have seen no cause for improvement," said a Germany-basedcocoa trader.

"Several pressers have cut output, some big multi-nationalpressers are on short time working in Germany. Germanconfectionery demand is not good and exports are falling."

The largest chocolate market in Europe by value, Germany'schocolate confectionary market is forecast shrinking to $7.24billion in 2012, down around 9 percent from the previous year,data from market researchers Mintel showed.

European cocoa traders said slowing chocolate demand andpoor cocoa processing margins triggered the resale of cocoabeans by major processors last month.

The world's largest chocolate products maker Barry Callebaut

has said that during the first nine months of itsfiscal year 2011/12, double-digit sales in the Americas, Asiaand eastern Europe helped offset still sluggish demand insouthern Europe.

"There are no signs of an end to the euro zone crisis andconsumer spending is very weak in south Europe including the bigmarkets of Italy and Spain," said a second Germany-based trader.

Cocoa demand growth typically tracks GDP growth and smallluxuries like chocolate are suffering.

Mintel said that while the global chocolate market valuewill be little changed on the year at $84.5 billion in 2012,Western Europe's chocolate market value is set to fall by around5 percent.

Sluggish demand has also hit Liffe cocoa priceswhich slid to a two-and-a-half month low this week.

"Expectation is for a lower grind, I think it's in theprice," said a London-based broker.

"If it falls more than 20 percent I think there will be somefund liquidation. The surprise would be a fall of less than 12percent or above 25."

Europe's third-quarter grinding data is due to be publishedby the ECA on October 16.

The International Cocoa Organization forecasts global2011/12 October-September grindings at 3.94 million tonnes,slightly higher than the previous season's 3.93 million tonnes.

"I wouldn't be surprised if the global grind for theOct-September year that's just finished came in balanced or down1 percent," said Jonathan Parkman, joint head of agriculture atbroker Marex Spectron.

"This year we're heading towards getting powder and butterstocks back to more manageable levels."

(Additional reporting by Michael Hogan in Hamburg and NigelHunt in London)

((sarah.mcfarlane@thomsonreuters.com)(+44 20 7542 5937)(ReutersMessaging: sarah.mcfarlane.thomsonreuters.com@reuters.net))