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 in Europe due to the economic crisis is expected to cut the continent's cocoa grinding in the third quarter.

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

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

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

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

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

European cocoa traders said slowing chocolate demand and poor cocoa processing margins triggered the resale of cocoa beans by major processors last month.

The world's largest chocolate products maker Barry Callebaut

has said that during the first nine months of its fiscal year 2011/12, double-digit sales in the Americas, Asia and eastern Europe helped offset still sluggish demand in southern Europe.

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

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

Mintel said that while the global chocolate market value will be little changed on the year at $84.5 billion in 2012, Western Europe's chocolate market value is set to fall by around 5 percent.

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

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

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

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

The International Cocoa Organization forecasts global 2011/12 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 the Oct-September year that's just finished came in balanced or down 1 percent," said Jonathan Parkman, joint head of agriculture at broker Marex Spectron.

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

(Additional reporting by Michael Hogan in Hamburg and Nigel Hunt in London)

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