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Research Market strategy
by Swissquote Analysts
Live Analysis

Salmon prices to stay firm as global demand expands

1

While conventional agricultural raw materials such as soybeans or corns strongly rely upon the wellbeing of the future US – China relationship, salmon fishery appears less sensitive. The good 80% of salmon exports originate from Scandinavia while Norway owns a major market share, thus influencing salmon prices worldwide. Out of the five largest aquaculture giants of the country Mowi, Salmar, Leroy Seafood, Grieg Seafood, Norway Royal Salmon, and Bakkafrost, combined investments estimated above $700 million are expected over the year, hence suggesting high confidence in the sector.

Indeed, as extremely cold temperatures emerged in key salmon producing regions among which Scandinavian countries, Canada or Scotland due to polar vortex air blast in Southern region during Wintertime, it seems that salmon prices should remain firm in first half of 2019, maintained above 60 NOK/Kg. Furthermore, a bounce into milder temperatures in second half of 2019 would also have a limited impact on prices, as stronger biomass growth would cause early biological issues (sea lice) that would disrupt the supply side during Spring/Summer growing periods. Fundamentals remain compelling, since demand for Atlantic salmon is expected to grow in Europe, Russia, Latin America and Southeast Asia.

Exports figures for the salmon agriculture show decent dynamism, as shown by Norway February data, with total exports of 80’000 tons of salmon for NOK 5.1 billion ($ 584.4 million), a rise in value of 11% compared to last year despite slightly higher volumes (February 2018: 75’700 tons) and prices up +1%. Over the course of 2018, Norway salmon farmers rose production by 5% while production is forecasted along 4% in 2019. This is good news for Mowi, the biggest salmon producer in Norway whose expansion into fresh and sea water projects in Canada, Chile, Norway and Scotland for a total of $130 million led the company to rise its volume guidance to 430’000 tons (+ 14.70% compared to 2018) of seafood in 2019, which should generate alpha looking forward.

Accordingly, we expect demand in established markets to accelerate, combined with higher prices and despite a global drawdown in global supply volumes, prompting higher profit margins in the foreseeable future. We therefore anticipate a good FY 2019 for the salmon industry, although stable economic conditions in key markets is essential.

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