SpareBank 1 downgrades salmon stocks

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Norwegian salmon watcher, SpareBank Markets 1, has downgraded salmon stocks across the board, its analysts saying they see “further downside” in the wake of more impactful price, production and performance data.

“It will take months to trigger demand in (the European Union), and while this happening we are seeing a full ramp-up of volumes from Norway and Chile,” wrote aquaculture analyst, Tore A. Tonseth, saying price developments had been “much weaker than we anticipated”. His team had a “sell recommendation” on the segment before autumn market conditions showed their true colors.

“We have cut our 2018 price forecast to NOK 50.9 (EUR 5.30) per kilogram to NOK 55.0/kg (or down 7.5 percent),” he wrote, adding, “(The implication) of this price cut is 15 to 25 percent reduction in 2018 EBIT and we have lowered most of our recommendations in the 10 to 15 percent range.”

The salmon sector, he said, was down 16 percent relative to the main, energy-heavy Oslo index over the past three months.

“We need to see another 10 percent drop before we will start reconsidering our negative sector view. We reiterate our Sell recommendation,” Tonseth explained.

But, there was more. A “lethal combination” of delayed salmon-production volume and low demand has brought prices “back to 2015”. He said markets “were fooled” by inventories in Chile and the pace of recovery in Norway’s lice- and disease-depleted biomass.

European distributors and retailers, meanwhile, had “built up another inventory”, and Europeans tied in to long-term contracts meant the Continent was unable to absorb the volumes on-hand. The result is that 2018 will see salmon prices around EUR 5.30 for the first three quarters.

That’s not where the market is at today, however, “Current share prices imply a salmon price around NOK 55 / kg for 2018.” Expect to see a lot of revisionist analysis in the coming months, Tonseth said, as analysts come to grips with the chasm between stock price and salmon price.