Asia Cocoa-Grinders closing as excess capacity pushes prices below cost

* Peak Christmas buying period 'didn't happen'

* Buyers bidding below cost for many producers

* Smaller grinders have closed down

* Excess stocks, demand balance seen improving in Q1 2015

By Fergus Jensen

JAKARTA, Nov 24 (Reuters) - With Asian cocoa butter ratios at 16-month lows, and surplus stocks and weak demand expected to continue into 2015, smaller grinders in the region are cutting output and closing as their margins shrink, traders said.

Butter ratios, a key indicator of demand, were quoted between 2.1 and 2.15 times London futures , their lowest since July 2013 although roughly unchanged since two weeks ago

"Most of the cocoa veterans in the industry are saying it has never been this bad. We've seen a lot of the small (grinders) close down and stopping production completely," one trader said, referring to plants with annual output of between 30,000 and 50,000 tonnes.

"(Buyers are) waiting for the price to go lower (but) sellers can't accommodate their prices because we won't make any money. It's a wait-and-see situation, stuck in the same game."

The regular Christmas peak demand period in October and November "didn't happen", the trader said, adding that demand had been quiet since mid-year as end-users and trading houses were only buying to cover for the short term. Demand was expected to continue week until mid-January.

"Nothing has been happening. It's weird that it's slow at this time of the year because usually in November it's quite busy with people buying for Valentine's Day."

Most cocoa grinding companies were no longer operating at a profit, a second trader said, noting excess capacity and stocks plus a slowdown in grinding over the past three months that was expected to continue until the end of 2014, unless bean prices declined or powder or butter prices improved sooner.

"In the short term you will see a big slowdown in grinding to reduce the excess stock in the market," the trader added, noting that several buyers had been snapping up forward positions on butter prices that were stabilising below $7,000 a tonne.

The excess stocks of powder and butter were not expected to be absorbed into the market until the first quarter of 2015, the trader said.

The reduction in grinding output could push cocoa bean prices lower, the trader said, without providing further detail.

Cocoa powder prices were between $1,800 and $1,900 per tonne, another trader said, up slightly from between $1,750 and $1,850 a tonne two weeks ago, although there wasn't much likelihood of a further improvement in the short term.

"The chance of powder prices going up is still minimal so the only hope now is terminal prices going down or end-users starting buying." (Reporting by Fergus Jensen; Editing by Alan Raybould)