Fish meal sector remains unstable

Landings

Total IFFO-5 landings (i.e. Peru, Chile, Norway, Iceland and Denmark) have reached 16.22 million tonnes (Mt), 35 per cent over 2003 and even about 5 per cent over the 1999/2003 average of 15.5 Mt. In fact, this year 2004 was practically at the level of the average catches of the past 15 years (15.9 Mt). This takes into account the good Peruvian catches in the last quarter of 2004, i.e. from October 25 when anchovy fishing was authorized in the North/Centre region and December 18, when anchovy fishing was closed again for a period of at least three months. During that period, Peru landed about 2.7 Mt of anchovy as a result of a very healthy resource. Last year 2004 was also a good example of how effective the controls on fishing have been in all countries. Quotas, fishing bans, temporary fishing limitations, control of the minimum fish size, etc have become, more than ever, the every day obligation of all industrial fishermen.

Production

Fishmeal production in 2004 from the IFFO-5 producers reached 3.6 Mt. If we take into account exports of 2.8 Mt and an ever-increasing home consumption of 820,000t, of which Chile, Norway and Denmark share the large majority, physical stocks at the end of the year were around 750,000t, enabling producers to meet market demand in the subsequent low production period of the 1st Quarter 2005.

Exports

In spite of a very complex trading situation, particularly due to extremely unfavourable freight conditions, exports reached 2.8Mt in 2004, up 15 per cent over the year 2003 (2.46 Mt). However, the market has shown rather contrasting situations.

Exports to Asia have been particularly buoyant with the three largest markets (as usual China, Japan and Taiwan) taking about 1.5 Mt, almost half of the total. IFFO-5 exports to China reached a new high of over 850,000t. On the other hand, the European market remains affected by the ban imposed by the EU authorities on the use of fishmeal in ruminants and other feed.

This trade barrier remains a strongly negative factor with exports to the European Union barely reaching 600,000t compared with about 950,000t in 2000, with all markets being affected. IFFO-5 fish oil production in 2004 is estimated at 640,000t, – up 20 per cent over 2003. Once again, production is being fully absorbed by demand whether on spot position or on longer term contracts.

An early 2005 forecast by producers shows that total IFFO-5 catches is expected to reach only 13.9Mt which is about 14 per cent below 2004 and about 15 per cent below the average for 1999/2003. For Peru, the 2005 forecast is 7Mt. For Chile, fishing is estimated at 3.7 Mt of which 60 per cent comes from the south and 40 per cent from the north. In Scandinavia, catches for 2005 would show another decline at around 3.2Mt landings.

Key issues

Among the most important external factors affecting our trade nowadays, the two most important are:

* The dramatic decline of the dollar against other major currencies, particularly the Euro, the Sterling Pound and the Scandinavian Kroners. This is seen as a major problem affecting the trade.

* The strong volatility of the soybean complex markets in the past year, particularly its recent decline, has been a handicap.

Actually, the very low price level of the entire soybean complex in the past two months has certainly not been a support to the market. However, the current fishmeal/soybean meal ratio has not even started to get close to the 1998 level which had reached a record level.

On the other hand, the key internal factors affecting our trade are:

* The great uncertainty on the European scene both for raw material procurement and for low fishmeal demand associated with the EU ban. The combination of both leads to a sharp decline of the EU on the whole world fishmeal scene.

* Although fishmeal prices have generally been stable compared with other commodities, the price correction witnessed during the past year on fishmeal has been very strong. Obviously, it has permitted temporary revitalization of the market but, like the buyers, producers are calling for stable market prices, the only way for the partners of the value chain to effectively allow a link between supply and demand.

Conclusion

It is very clear that, in the longer term, we remain in a scarcity driven supply/demand context. However, as usual, the short term management of the market is of great importance to all actors of the fishmeal & oil value chain and particularly of the producers as, by it own nature, they have to directly manage one of the major uncertainty of the market, its supply side.