“How much capital can you afford to tie up in frozen inventory, Chile?”

Katrina Poulsen

Seafood analyst from Nordea Markets believes it is a matter of time, before Chilean salmon farmers have to release frozen stock of salmon to avoid big financial losses.

The last couple of days the focus has been on the growing frozen inventory in Chile. Monday SalmonChile stated that over 50,000 tonnes of salmon are on freeze. But according to Nordea Market analyst Kolbjørn Giskeødegaard the big question is, for how long the industry can keep their stocks frozen?

“My impression is, that the physical capacity in Chile is very close to its limit right now. I think they need to release some inventories in order to have more capacity,” said Kolbjørn Giskeødegaard to SalmonBusiness.

Estimates based on Kontali numbers show that since September 2019 to March 2020 50,000-60,000 tonnes more Atlantic salmon have been harvested than exported. If the local market takes in around 20,000 tonnes of these salmon stocks, there is still a growing stock on freeze.

“I would say that somewhere between 30-50,000 tonnes of Atlantic salmon have been build up since September,” said the analyst.

The 30-50,000 tonnes of Atlantic Salmon can be added to the 40,000 tonnes of coho salmon, that SalmonChile Monday reported are on freeze in Chile.

“There are physical constraints on how much you can actually put on freeze. Of course in Chile you could get access to freezing storage, that might otherwise be used for meat. But then there is also the problem of: how much capital can you afford to tie up?” questioned Nordea market analyst.

Read also: Chilean salmon market in trouble: The closed US market expands frozen stocks of salmon in Chile

Already red numbers in Chile
Kolbjørn Giskeødegaard explained that if the companies have a good cash flow, high margins and economic support, as Cermaq, Mowi Chile, Camanchaca and AquaChile, they can afford to have a build up in frozen inventory. On the other hand if companies need capital, they are forced to release stock at a lower price to meet the lower demand in the market.

“Chileans are already delivering red figures and they have a negative cash flow from the sales, so they don’t have a positive cash flow to fund frozen inventories,” he said and clarified:

“At some point they are forced to release their inventories. I think the big question is more, when will they be forced to release the inventories, rather than how much more can they accumulate?”

When do you believe they will have to release inventory?

“I don’t want to speculate on that, because I also know that there are a lot of Chilean companies that are financially sorted, it is a much better starting point than in 2015.”

Better situation than in 2015
Kolbjørn Giskeødegaard states the Chilean industry is at a better starting point than the crisis in 2015 & 2016, when the Calbuco volcano erupted, and the algal bloom in 2016, that caused around 17 per cent of the country’s projected output.

“They have a stronger starting point to handle this, than five years ago. But at some point they have to start releasing inventory, so they can accumulate more.”

A result of the releasing of inventory will be a drop in the salmon prices. Monday Rabobank seafood analyst stated the months to come can lead to losses for the entire salmon industry, due to these lower salmon prices. Kolbjørn Giskeødegaard agrees with this point of view:

“I fully agree with this view. I think we will see low prices in the next six months. There is going to be a higher supply to a lower demand, and there will be no cross the boarder tourism. We expect prices will start to stabilise in 2021. We don’t expect the prices to come back to the level before COVID-19.”



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