February 7, 2005

Analysis of China's fishmeal market, post-Spring Festival

An eFeedLink Exclusive Report
 

Since early February, China's fishmeal prices have been declining amid light transactions as traders were in a festive mood over the coming Spring Festival. Price quotes for FAQ imported fishmeal (above 64% protein) at Dalian port are currently at RMB5,600/ton. At ports in Tianjin, Shanghai and Huangpu, quotes were RMB 5,650-5,700/ton, RMB5,550-5,600/ton and RMB 5,600/ton respectively, a dip of about RMB100-150/ton compared with late-January.
 

The traders have shown increasing concern about fishmeal price trends after the Spring Festival. The following is an analysis of price movements based on current trends.
 

Post-festive fishmeal supplies look set to outstrip demand. According to recent shipping schedules, nine shipments of over 130,000 tons of fishmeal are due at China's ports in late-February (see table). Although the volume of actual arrivals could be much less because of shipment delays, analysts are still expecting about 100,000 tons.
 

Shipment arrivals are therefore likely to impact demand and supply of fishmeal, bringing current supplies up from 70,000 tons to a staggering 200,000 tons.

Fishmeal demand is expected to weaken after the Spring Festival with analysts attributing this to the following:

• Most feed millers will be closed for business or operating partially during the Spring Festival season, resuming full operations only after Feb 23.
   
• Many feed millers have already obtained sufficient stocks to last production needs for about two weeks to one month. The next round of stock replenishments will only begin in the latter part of March.
   
• More feed millers are choosing to remain on the sides in anticipation of a less than favourable outlook. Such a wait-and-see attitude could drive down further the pace of transactions.

Analysts are also lowering their forecasts for fishmeal exports leaving domestic ports in February, as the Spring Festival brings business activity almost to a halt. Fishmeal exports this year are estimated at 30,000 tons, hardly near the 56,000 tons shipped in February last year (2004's Spring Festival was in January). Still, stockpiles at ports by the end of the first quarter could reach 140,000 tons and above.
 

In lieu of thin demand and hefty volumes of fishmeal arriving at ports, excess supply will persist in the near-term. Prices may slide even further in the coming weeks after the festive period, although high import costs will cushion any drastic price falls. CNF prices of FAQ Peruvian fishmeal are currently at US$605 - 615/ton, or RMB5,200 - 5,300/ton.
 

Despite less than favourable market sentiments, some traders are cautiously optimistic about the post-festive market outlook. They noted that prior to the Spring Festival, some feed millers had actually reduced procurement volumes or refrained from making any purchases altogether in anticipation of prices falling further in the near term.
 

In so doing, these millers are betting on the post-festive demand for fishmeal climbing past previous years', as the next wave of procurements is expected to roll in sooner. Fishmeal consumption may rise year-on-year, with prices stabilising or even rebounding to previous levels. However, whether or such a scenario will prevail remains to be seen.