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Fishmeal Market Turns Bearish On Good Production, ASF, High China Stocks
Jan 26, 2019

The fishmeal market is described as bearish as good production in Peru weighs on market prices while stocks mount in China, as demand there takes a bigger hit than expected from an African Swine Fever (ASF) outbreak.

“It’s all bearish news,” James Frank, director of Peruvian fishmeal trading company MSICeres, told Undercurrent News Tuesday (Jan. 8). “The market is dropping in China as local fishmeal is competing with imported and port stocks are still high.”

“The [ASF] outbreak is taking a larger toll on Chinese hog herds than expected initially," Jean-Francois Mittaine, an industry expert with 30 years experience, told Undercurrent. "I heard the situation has led to significantly lower usage of fishmeal."

Stocks of fishmeal held in Chinese ports have hit a 10-year high for the time of year, at 186,000 metric tons, according to Chinese government figures. According to Undercurrent’s price portal, in Shanghai port, Peruvian superprime fishmeal offer prices, ex-warehouse, have fallen to CNY 10,700 per metric ton ($1,566/t), down CNY 1,200/t since mid-October.

Credit: Doidam 10/Shutterstock.com

Credit: Doidam 10/Shutterstock

Meanwhile, China’s fishmeal imports in 2018 are expected to be similar to last year's near-record levels, according to Mittaine, further boosting supply there. Reflecting the change in market sentiment, he reckons prices in Peru for superprime fishmeal, CIF China, are now about $1,500/t. 

“The fishmeal market is really looking for direction, with many uncertainties, particularly in the Asia-Pacific market,” he said.

Due to the rising cost of freight the free-on-board (FOB) price in Peru is about $20/t lower, or $1,480/t, he said. Frank estimated an asking price of $1,500/t with FOB trades at $1,490/t. 

The bearish sentiment is in contrast to just over a month ago when, shortly after Peru’s second anchovy fishing quota was announced, industry sources said the quota figure of 2.1m metric tons was the "perfect number" for things to stay stable. 

But in China downside factors had been mounting. A weakened Renminbi had hit Chinese importers’ buying power, while ASF was already causing a stir. The warning signs were there in early December, said Mittaine.

He reckoned supply and demand conditions could complicate pricing looking ahead. Peru is still producing large amounts of fishmeal and “big volumes” are either on the water to China or soon to depart, noted Frank. With 180,000t-190,000t of Peruvian fishmeal still unsold, when it is sold it will arrive in China in late March or April. 

“Then there will be all the first prospects of the first season of 2019, which probably may lead us to a situation problematic for price fixing,” said Mittaine.

Chinese importers, who bought strongly in Q3 of 2018, appear under particular pressure.

“It's clear that [in the current situation] the most immediate challenge for Chinese importers is to protect their margin, which is already pretty negative. Second, they have to prepare at the same time the arrival of new fishmeal,” he said.

That could be a challenge. This is because, to ensure stocks in the first quarter of 2019, they bought strongly prior to Peru’s second anchovy season quota being announced, he said.

According to industry sources, Chinese buying drove prices for Peruvian fishmeal to $1,580-1,600/t, CFR China, some say even higher. Based on import data, Chinese importers also bought heavily from other regions in September and October, such as India, which is “coming into the picture” with competitively priced fishmeal, said Mittaine (see chart 1).

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China's fishmeal imports. China imported 1.41 million metric tons of fishmeal from top-20 suppliers between Jan-Nov; 55% came from Peru

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“It was a reasonable approach in view of the uncertainty of [Peru’s] second fishing season,” said Mittaine. “The second season started very badly in 2017, remember. In 2014, there was no fishing. In order to secure minimum supply, they had to book some physical fishmeal.”

But after Peru announced a 2.1m metric ton quota, Peru’s fishing boats found plentiful fish in their nets and Chinese discovered Peru would deliver after all. As of Jan. 7, 97% of Peru's 2.1m metric ton quota has been landed, or 2.03m metric tons, according to Imarpe, Peru's fisheries body.

Meanwhile, China’s own fishmeal production was recently forecast to be 10-15% higher than last year, according to the Intentional Marine Ingredients Organization (IFFO). Mittaine reckons it is up by 20%.

“It's important to have an adequate quantity of fishmeal on hand to meet local demand in the first quarter of the new year. But what they probably did not plan for is ASF.”

African Swine Fever

Along with Peru’s second season production, ASF has been the other big unknown factor. Still, it is unclear to what extent it has impacted consumption, although Mittaine reckons it is “a lot”.

ASF has spread to 23 provinces and municipalities across China since the first outbreak in August, reports Reuters, and the number of reported cases of the disease has risen to over 100. Some believe the actual number of cases is higher.

200,000 pigs have been culled. 

Although this is a small number given China’s population of around 700 million pigs, Chinese swine farming companies have issued profit warnings, citing the issue.

Fishmeal is used widely in piglet feed. According to IFFO, about 30% of fishmeal sold in China is fed to piglets, and during the winter months, when China’s aquaculture production winds down, the share is higher.

Meanwhile, ASF shows no signs of abating; the disease is incurable and, last week, a case was confirmed at the largest hog farm so far, Reuters reported, despite the government insisting the disease is "generally under control".

“You have to consider that China again imported near-record volumes of fishmeal in 2018,” he said, estimating full-year imports of around 1.57m metric tons. “If demand is lower, they will have an issue with increasing stocks.”

Cases of ASF have
been reported in 23 provinces. Shutterstock

Mittaine reckons other Asian countries are picking up some of the slack.

He noted 20,000t-30,000t of fishmeal were traded in Lima, Peru, in the past two weeks.

“Peru is selling production nicely,” concurred Frank. Previously Frank said he expected Peru would "recover markets lost in times of scarcity". 

But Mittaine reckons the market may have yet reached the floor.

"Overall my view really is that there is a clear risk of a further depreciation of prices in China. The spread FOB Peru versus ex-storage price in China is currently below effective cost considering current Chinese prices. Thus, right now, in order to buy Peruvian superprime they need to buy at prices no higher than around $1,450/t. This will affect the way the new trade will be fixed in the coming months."