Norway’s Salmon Stocks Repel Market Plunge on Production

Marine Harvest ASA (MHG), the world’s biggest salmon farmer, and other producers are surviving a slump in fish prices over the last two months as a supply overhang is seen coming to an end.

Spot prices for Atlantic salmon plunged 32 percent from a record in July as warmer sea temperatures hastened fish growth and boosted volumes, according to data from the Bergen, Norway-based Fish Pool ASA salmon exchange. The Oslo Stock Exchange’s 15-member Seafood Index has fallen 0.6 percent since mid-July, helped by an outlook for a “pretty tight” market next year, Swedbank AB (SWEDA) said.

“Despite the price decline, expectations for 2014 are almost unchanged,” Henning Steffenrud, chief analyst at Swedbank First Securities, said in a phone interview. “Combined with the fact that salmon stocks are looking attractive on earnings multiples, that’s holding share prices up.”

An easing of market imbalances will probably stem a price decline, the worst since a market crash in 2011. Production in Chile, the world’s second largest, has peaked for the year and output from Norway, the biggest producer, isn’t expected to grow beyond the seasonal pre-Christmas jump, said analyst Kolbjoern Giskeoedegaard at Nordea Markets in Oslo.

Marine Harvest’s biggest owner, billionaire John Fredriksen, has since July 22 bought about 100 million shares, boosting his share in the company to 31.31 percent. Marine Harvest is up 21 percent this year, valuing the company at 22.6 billion kroner ($3.8 billion). The seafood index has risen 28 percent in the same period.

Price Bounce

Spot prices for Atlantic salmon fell to an average of 31.9 kroner a kilogram (2.2 pounds) for 3-6 kilo fish last week from 46.9 kroner eight weeks earlier, according to Fish Pool, the world’s only salmon derivatives exchange. Weekly data from Norway’s statistics agency show a similar price decline. The price of fresh salmon has slid 25 percent since July’s record to 33.73 kroner per kilo this week.

Prices should bounce back to about 35 kroner before the end of the year and into the first quarter of 2014, according to Giskeoedegaard. That would allow the market to avoid a repeat of 2011, when prices plunged 60 percent over 10 months, reaching 18 kroner because of a supply shock from Chile, sending the seafood index down 50 percent, he said.

Salmon Selloff

“We’ll probably have a two-month period with prices in the 20s, but I would be surprised if they fall below 25 kroner,” Giskeoedegaard said in a Sept. 16 phone interview. “Harvesting will be high for the next three months, but as we approach December, demand from the smoking industry will create a better market balance.”

The salmon selloff comes as an unusually cold winter to start the year delayed growth and harvesting, before warmer-than-average sea temperatures during the past weeks led to accelerated growth and pressure on farmers to harvest, Giskeoedegaard said. From August to the beginning of September, exports from Norway grew by 39 percent to 23,153 tons of whole-fish equivalent a week, said Fish Pool trader Simen Thorbeck.

While supply will continue to weigh on prices in the coming weeks, forward contracts for 2014 trade at 35.5 kroner, reflecting confidence, Thorbeck said. Nordea (NDA) forecasts average spot prices of 37 kroner and 36 kroner in 2014 and 2015, while Swedbank sees prices at about 34 kroner in 2014.

‘Fantastic Earnings’

“It’s a bit conservative compared to the current forward prices, but this level still represents fantastic earnings for salmon farmers, who at the moment are breaking even at slightly higher than 25 kroner,” said Swedbank’s Steffenrud.

Analysts are optimistic about Oslo-listed salmon farmers.

Marine Harvest is seen gaining by an average of 22 percent to 7.25 kroner over the next year by 11 analysts. Of 18 analysts covering the company, 14 recommend buying the stock, which has slipped 1.5 percent since the salmon price drop started in July.

Salmar ASA (SALM) and Bakkafrost P/F (BAKKA), Nordea’s “top picks” amongst salmon farmers, rose 4 percent and 6.9 percent in that period respectively. Of 11 analysts covering Salmar and nine following Bakkafrost, a majority recommend buying the shares and none recommend selling.

Carnegie ASA today upgraded its rating on the Norwegian fish-farming sector to buy, arguing there’s a 25 percent to 50 percent upside for salmon shares over the next year thanks to “strong cash flow, dividends and M&A ahead,” the Oslo-based investment bank said in an e-mailed note to clients.

The Oslo Seafood Index rose as much as 1.1 percent as of 9:28 a.m., extending a winning streak to four days.

Marine Harvest and other farmers such as Cermaq ASA (CEQ) and Leroey ASA are trading at a price-to-earnings estimate for 2013 of 11.86, 12.03 and 8.15, respectively, compared to a 12.60 for Oslo’s OSEBX benchmark index, according to data compiled by Bloomberg.

“We’re definitely in the low-end” of historical price-earnings ratios for Norwegian salmon farmers, Nordea’s Giskeoedegaard said.

To contact the reporter on this story: Mikael Holter in Oslo at on mholter2@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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