Marine Harvest Chile had negative margins in Q3 2012
Marine Harvest Chile experienced an Operational EBIT of NOK -2.54 (US$ -0.44)/Kg in Q3 2012 which compares negatively to the Operational EBIT of NOK 6.02 (US$ 1.04)/Kg obtained by the company in the same period of the previous year. The negative margin was a result of lower prices and higher costs according to the firm.
Spot prices for both, Chilean and Canadian Atlantic salmon dropped significantly while costs in Scotland and Chile increased as a result of biological issues. Moreover, HOG cost in box at processing plant USD 4.2 per kg
In the US market, prices dropped significantly due to the continued strong growth in supply from Chile. Prices for Chilean salmon dropped by 22.2% compared to the third quarter of 2011. As the Canadian salmon is competing with the Chilean salmon on the US West Coast, the Canadian prices were also sharply reduced (15.6%). The prices in Europe and Americas are hence currently diverging from a historic pattern of strong correlation. This is perceived to be due to low availability and high cost of air freight from Chile to Europe combined with a low demand for frozen products in Europe. It is expected that the pattern of diverging prices will be continuing over the next quarters.
Price and volume development The spot prices for fresh fillets of Chilean origin were lower in the third quarter of 2012 than in the previous quarter and were also significantly down compared to the third quarter of 2011, when the availability of Chilean salmon was less abundant.
For the quarter in total, the US market was very challenging. The Brazilian and Japanese markets also experienced price reductions, but to lesser extent than in the USA. The USA market is expected to be challenging for some time due to the abundant Chilean supply. The price achievement in the third quarter was good, reaching 112% of the reference price level. Both spot and contract sales contributed favorably to the price achievement.
The adjustment for quality downgrading was low in the period. The contract share for salmon of Chilean origin was 21% in the third quarter. Harvest volume was 9 852 tonnes gutted weight (11 036 tonnes).
Costs and operations Due to increasing feed prices and higher feed conversion rates, the feed cost per kg harvested has increased compared to last year. Other seawater costs have also increased due to higher sea lice mitigation costs. Non-seawater costs are negatively affected by the reduction in harvest volume.
Marine Harvest’s biological development in the third quarter was good, although the biological concerns remain. The sealice load at the end of the quarter was higher than at the same time in 2011, and challenging market conditions and lack of cash makes it difficult for some Chilean salmon producers to finance lice mitigation treatments and prevention measures. Sernapesca monitors the situation, but stricter enforcement of the new regulations are required to secure sustainable salmon farming in Chile going forward.
