Nordea: Real algal bloom impact thus far is 40,000t salmon lost to market
While the Norwegian directorate of fisheries has just published an update stating a little over 10,000 metric tons of farmed salmon have so far been lost to an algal bloom, Nordea Bank's lead analyst has warned this is only part of the picture.
That 10,000t is not the meaningful figure," Kolbjorn Giskeodegard told Undercurrent News. "What matters to me, really, is the number of fish confirmed killed so far."
That, he said, is -- at a conservative estimate -- between six and eight million salmon.
Media estimates report around five or six million lost at just Nordlaks, Northern Lights Salmon and Ballangen Sjofarm; there are also undisclosed losses at a further five firms, the analyst said.
The 10,000t figure is the biomass in the sea which the government estimates has been killed -- but that does not represent the potential growth. Eight million salmon, harvested at 5 kilograms each, means a drop in global supply for the coming period of 40,000t.
"The losses vary from negligible numbers of fish to loss rates up to 90% in some pens," Giskeodegard wrote in an email update. "And even more worrying, the IMR [Norway's Institute of Marine Research] estimates that the bloom is moving further westwards and could reach the Svolvaer area [May 21]."
In this area, there are another three locations with a biomass capacity of 11,000t, he said.
"If 40,000t is lost, this will take global supply growth from 6.6% to 5.0%. If the losses are doubled, Norway’s salmon harvesting will decline in 2019, and global supply growth will be 3.3%."
For now, Nordea estimates the price impact from the natural event to be an added NOK 1/kg on forward prices for 2019. "If this continues to escalate, the effect in lost fish and higher market price will increase."
2016's "supply shock" has shown that market psychology can play a huge role in pricing as well, Giskeodegard noted. "A sense of panic might squeeze prices more than a model is predicting."
While this is tragic for those companies hit by the bloom, those that escape the impacts will benefit from higher pricing, he said. A NOK 1/kg higher price should improve earnings per share by 3-4% for most of the listed salmon players.
At the start of March, Nordea had a Q1 and Q2 forward price estimate of NOK 60, and Q3 and Q4 at NOK 63. Find an update from a number of analysts on prices here.
Christian Nordby, equity research analyst with Kepler Cheuvreux, was slightly more optimistic in his outlook, though also noted that the market impact already is much greater than 10,000t.
His firm's had estimated biomass losses to be 6,000t, before the government put these at just over 10,000t, later on May 21. 6,000t was equivalent to 0.9% of Norwegian biomass, he'd written.
"If we make a scenario and say that all fish [lost] are 1.2kg then they will mostly be harvested in Q4 2019 and Q1 2020. That means that in this scenario around 5m salmon were supposed to be harvested, which is equivalent to 22,500t (if yield is 4.5kg). If 22,500t falls away in Q4 2019 and Q1 2020 then Norway will virtually have no growth in this period."
Again, his estimates were made ahead of the government's update, but stress once more that the bloom is going to have a significant impact on supply.
Kepler Cheuvreux issued a roundup of which farms it knew to be affected thus far:
- Ballangen Sjofarm, 30%-owned by Cermaq Group – lost 2.7m fish, equivalent to 3,000t. "That is an average biomass weight of 1.11kg. That means that this is likely mostly 18G individuals which again is mostly due for harvesting next year. However, if this is a mix of 17G and 19G then it impacts near term supply. Nonetheless, it is hard for a farmer to quickly replace 1.11kg of fish and thus this negatively impacts supply growth in the period 2019/2020."
- Nordlaks: "It is said that Nordlaks has lost 1.3m fish with an average weight of 1.3kg. Nordlaks has lost around 80% of all its site named Ytre Saetre."
- Ellingsen Seafood -- No exact numbers yet known.
- Mortenlaks -- No exact numbers yet known.
- Northern Lights Salmon -- No exact numbers yet known.
- Sorrollnesfisk -- No exact numbers yet known.
Norwegian newspaper NRK has estimated that the last four companies on the list had lost around 1,000t by May 17, Nordby said.
Map of Ofotfjorden, showing the algae's likely route for the next 48 hours. Credit: Barentswatch and Nordea estimates
His firm had estimated world supply over the next 12 months to be 130,000t, assuming 5% supply growth globally. "If we are now seeing 110,000t, that means around 4.3% growth; a meaningful decrease in supply, and we do not know when [the algal bloom] stops spreading," he said. "On top of this, we have a positive demand driver from China."
So far, the listed farmers are largely unaffected, he said. Norway Royal Salmon (NRS)-linked Masoval Fiskeoppdrett "could be impacted", but NRS itself should be safe.
"All the big farmers benefit in a higher price, lower volume scenario," he noted.
Finally, Carl-Emil Kjolas Johannessen, of Pareto, told Undercurrent the bloom would "definitely have an impact on supply for the year, and thus also prices".
"The number of fish killed by the algae is still unclear so it is difficult to say exactly what the impact will be. But based on what I have seen it could be around 5-6m, which again equals around 1-2% of Norwegian supply. We have not seen any big moves in forward prices yet, but I would expect them to move somewhat up."
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