DNB: Chile is back

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Chile’s tough times are thing of the past, DNB Ocean Industries analyst says

Chile’s historical salmon production problems and price volatility may be behind it, judging by the hard math of a DNB Ocean Industries aquaculture analyst SalmonBusiness spoke to on Friday.

The country has pieced together a new aquaculture law similar to the Norwegian “green-light” system, where permits to produce are linked to limiting damage to surrounding waterways. Chile’s own “performance-based” system of lower density, more lightlystocked grow-outs will also limit licensing to new areas rather than areas beset by problems.

“The new regulations are being implemented as we speak, it’s actually happening and there’ll be reductions in the stocking regime,” Mr. Sletmo said, adding, “It’s an important regulation and a game-changer for the Chilean industry.

In a presentation for an industry gathering in Bergen called, analyst Dag Sletmo said Chilean prices had in the past come down in part due to North America’s faster-than-expected supply growth. Yet, in third-quarter 2017, Sletmo said, Chilean earnings before tax per kilogram, or EBIT/kg, stood at about 12 kroner while Norway’s — or at least Marine Harvest’s —  was up above 20 kroner.

Since a deadly algal bloom in 2016, Chilean earnings on each fish have surged from nearly a 15 kroner loss per kg of salmon to about a 22 kroner EBIT gain. Beyond the algal bloom, Chilean salmon farming has survived recovering Canadian production and, early on, a Norwegian kroner that weakened just as Chileans might have wished that it had soared in value.

In all, Sletmo noted the lock-step movement of Chilean and Norwegian prices, suggesting it was too close to determine which regional price would “lead” by year’s end. The Norwegian krone could decide it, he hinted, as its value against the dollar and other key currencies, like the euro, returns to “normal” after what he called an oil-fueled “super-cycle”.