* Euro contracts may offer cost savings for processors
* New markets a threat to existing sterling contract
By David Brough
LONDON, Jan 9 (Reuters) - New euro-denominated cocoa futures may have the backing of processors operating in the currency zone, but will struggle to survive against well-established sterling and dollar contracts, market sources said.
ICE Futures Europe has this week unveiled plans to launch a euro-based cocoa contract in April and CME Group is pressing ahead with plans to introduce a similar contract.
If either is successful, the relatively small size of the global market means one of them could eventually spell the end of sterling-based contracts, some market participants said.
The world's top cocoa processors, Cargill and Barry Callebaut, are among those who may welcome the euro contracts as both have extensive operations in the zone.
"They (processors) are pushing for the euro on the basis that a lot of their business is structured in euros. They presumably see it as a cost saving opportunity," a senior European cocoa trader said.
"The problem is they need other people to play with. They can't provide the liquidity on their own," the trader added.
Speculators, who account for much of the volume in futures markets, are likely to continue to back sterling and dollar contracts because they are more liquid, at least initially.
"The (euro) markets have to attract the interest of speculators. That will take time and confidence. They could fall down because a lack of speculation," one cocoa broker said.
One issue playing to the advantage of a euro-denominated contract is that the currency of top cocoa grower Ivory Coast is pegged to the single currency.
A euro-based contract will also enable processors operating in euro zone to reduce their foreign exchange risk.
"Most of the cocoa in the world is contracted in euro terms, and a euro-based contract will be a much more efficient way for West Africa to market their cocoa and for Europe as a whole to price their cocoa," one U.S. industry source said.
But the problem is that Ivory Coast will have sold forward much of its 2015/16 crop by the time the new futures are launched. These forward sales will have largely been hedged in sterling.
"Liquidity (in the euro contracts) will be horrendous for the first three to six months because everyone has hedged their 2015/16 positions in sterling," another European trader said.
But if one of the euro contracts does eventually succeed it is likely, however, to doom the London-based sterling rather than U.S.-based dollar market.
"I would suggest by this time next year we will have a dollar-based and one other contract trading," Jonathan Parkman, joint head of agriculture at broker Marex Spectron, said. (Additional reporting by Luc Cohen in New York, editing by David Evans)