Brief overview of key markets for Pacific seafood as per early February 2010

In early February 2010 the US fishery of Bering Sea pollock which took off on 20 January 2010 was progressing even more slowly as compared with January 2009, according to the overview prepared by analysts of http://www.megafishnet.com/ (https://www.fishnet.ru/) based on Japanese and Russian sources.

Non-official information was confirmed by official reports on catches and production of main commodities. In the first days of the A season the fishery situation was exclusively unfavorable (so that several factory trawlers even switched to yellowfish sole and suspended launch of onshore processing lines. Pollock catches and production of roe products and other commodities were at a very low level making the market participants interested in US shipments worry about the outlook of the season.

As per 23 January 2010 roe production has been reported at only 80 tonnes versus 190 tonnes last year (though in 2009 the first catch report was made on 24 January 2010), and pollock catches in the Bering Sea have been limited to only ca.5200 tonnes, nearly twice down on 24 January 2009 (for comparison, on 23 January 2010 catches of yellowfin sole only amounted to nearly 3600 tonnes, and the total trawl harvest of flounder exceeded 5600 tonnes). In the end of January 2010 all the fishing vessels only had to wait for the start of the main spawning run, and production of pollock fillets of all the types on the US grounds in the Bering Sea amounted to less than 450 tonnes, production of headed and gutted pollock was limited to less than 400 tonnes (however, as compared with last year it jumped by 6.2%), production of minced fish was limited to less than 230 tonnes, surimi production - to ca.130 tonnes, and fishmeal output was less than 35 tonnes.

In the A season the weekly production of pollock roe on the grounds in the eastern part of the Bering Sea exceeded 1000 tonnes only by the middle of February 2009, and in the first days of the fishing season the catch rates and roe yield were also not large as at the early stage the fishermen harvested mostly old nonmigratory pollock. In the current year 2010 the situation has been similar only with even more negative effects, as the abundance of old classes of pollock has declined even stronger. Activity of roe production has again shifted to the second half of the A season, approximately to the period from mid-February to late March 2010.

According to the Japanese importers, the results of the A season will mostly depend on the start and abundance of the run of the 2001-2005 pollock classes and the time period of the run of younger classes of 2006. The latter class is often called the dominating class replacing the generation of 2000, the abundance of which is very strong proving for the high level of the catch rates and production indices in the previous years (until 2009). According to the Japanese specialists, the average size and weight of young pollock may become especially important issues in the A season 2010, as they will exert influence on the average size and maturity of the young pollock roe.

Some experts say that the main period of the pollock roe production on the US grounds may stretch greatly which may make the US producers conduct auction sales in Seattle later than usual. Anyway, exclusively slow start of the current season has put a point-blank question if the US side could conduct the first round of auctions in the end of February 2010 or at least in early March 2010 (and if the seasonal sales keep divided into two rounds of auctions), while for the Russian producers the problem with the start of the seasonal sales at auctions in Pusan has evidently grown especially urgent this year.

The problem evidently consists in the fact that very quick increase of production indices makes the Russian side either prepare for the rise of expenses for storage of seasonal products before the start of auction sales or prepare for active sales of pollock roe in Pusan earlier than such sales are started by the US companies in Seattle. In the previous years the Russian producers have already made several attempts to take the initiative in seasonal sales of pollock roe, but the efficiency of those steps has been not high. The market specialists mainly think that the initiative in seasonal sales of roe still belongs to the US producers and formation of the general price level greatly depends on progressing of sales first of all in Seattle and then in Pusan.

Even all the probability of a dramatic decrease of the US production in the A season (according to pessimistic estimates, it may fail to reach even 10,000 tonnes) cannot change the balance of roles as the Japanese buyers commanding the purchasing activity seem to be not ready to amend the traditional practice and will first of all follow up the dynamics of sales in Seattle. It is difficult to say what will happen in the current year, but the risk of too early start of sales remains very high while this season it seems really a challenge as the main goal of the Russian side is evidently not to let the prices descend beyond 7.00 USD per kilo.

Probably the wish to postpone the deadline for decision-making could be attributed to the plans according to which transport vessels should first go to China to land pollock there and then on their way back head for Pusan to land pollock roe there. Active shipments of products from the Sea of Okhotsk took off already in late January 2010 due to very quick loading of onboard storage facilities. Early start of landings itself suggest that sales of Russian roe in Pusan may also start very early and rumors that some Russian producers are allegedly preparing for early auctions only strengthen the forecast.

Doubts about reliability of the above mentioned forecasts arise at least from vagueness of time periods for possible sales start (second decade of February 2010) practically coinciding with celebration of the New Year under the lunar calendar (on 14 February 2010 namely, but the celebration period may stretch from 13 to 19 February 2010).

The Japanese side depends on the latter factor at the smallest extent, but, first of all, in the beginning of the second ten days of February 2010 Japan celebrates the National Foundation Day and, second, the common wish to see what will happen may greatly decrease interest of the Japanese side in the first and early auctions of the Russian products. In such a situation the South Korean buyers can again form the vanguard, but at the expense of very large import rise in 2009 the market of South Korea has not been showing any lack of raw material supply for local processors. Under such conditions in the very start of the sales season the Russian producers may begin facing problems on the main markets of their products and slackness of main buyers. This fact in no way eliminates concerns about possible decrease of prices as compared with the last year level, moreover if the quality inspections which are held before the auctions confirm provisional validation of January products (quality of which has never been especially high).

According to the reports coming from the Russian pollock grounds, in the closing week of January 2010 the fishery situation in the Sea of Okhotsk improved again after heavy storms in the previous week. The fishery dynamics recovered very quickly encouraging more active production of frozen pollock roe. The total pollock roe yield in three closing weeks of January 2010 amounted to 2.81% in the waters of West Kamchatka, but taking into account that in the North Okhotsk subarea it was lower, the average roe yield in main subareas leveled at 2.7% (in keeping with the average level for January).

The total production volume of frozen pollock roe in the West Kamchatka waters in the three closing weeks of January 2010 reached 3650 metric tons. Taking into account catches in the first ten days of January 2010 the total production in the Sea of Okhotsk in January 2010 reached 4000 tonnes, and in general in all the areas of the Russian Far East it could be close to 4500 tonnes. However, according to the Japanese specialists, the average quality of January products was not high with the domination of immature roe and roe in sacks with thick membrane evidently due to the fact that the fishery was conducted at large depths of about 450 meters. Besides, the share of mature roe in the total January production output is normally not large which decreases the average level of quality as the Russian products are sold at auctions usually subject to full product range on offer.

Already in the beginning of February 2010 the total pollock harvest in the Russian Far East was getting closer to the level of 250,000 tonnes while in January 2010 catches only in the main subareas of the Sea of Okhotsk amounted to ca.185,000 tonnes. Thanks to such production volumes, the output of headed and gutted pollock has already reached 100,000 tonnes, production of w/r pollock has exceeded 30,000 tonnes, and the output of fillets of all types has reached 4000 tonnes.

However, according to many market specialists, such a quick entry of the Russian producers of main pollock products may create extra problems for the producers. The grounds for such pessimistic approach lie in purely organizational sphere rather than in the current condition of main markets. More specifically, there is a problem with the launch of issue of legal catch certificates strongly required by the EU as of 1 January 2010.

Strange enough, but in the end of 2009 and in the very beginning of the current year 2010 many market players seemed satisfied with solution of management problems such as approval to fish in two suabreas of West Kamchatka out of the summarized quotas. However, already on the closing week of January 2010 a new problem arose (unexpectedly for some players and expectedly for the others) to threaten large troubles and complications in trade. More specifically, as per early February 2010 the system of issue of the above mentioned legal catch certificates has not been launched yet and, judging by the EU directive ruling that the certificates shall not have retroactive effect, all January products cannot be sold to end customers on the European markets. In the meantime, the EU states still remain the key markets for onboard Russian pollock fillets and for double-frozen pollock fillets made by Chinese plants from the Russian frozen raw material.

The situation remains fairly tangled and obscure, also for at least some of the Chinese processors. Some Russian producers are sure that either everything will be settled by itself or a way out could be found with the help of the South Korean partners. Others think that the EU authorities will sooner or later soften their rules because, first of all, the Russian authorities will do active steps towards that, and, second, the European users themselves will be facing problems caused by smaller supply of cheap Chinese products.

Some Chinese processors have been agitated and started to think of the need to do something especially in the sphere of searching for the possibilities for product shipments from the January raw material to the US and other markets as alternative to the EU markets. However, it is worth mentioning that for the Chinese nation the New Year celebration under the lunar calendar remains the main event of the year and therefore there is no surprise that for the Chinese side all the twists and turns of the early sales of the Russian raw are not of the first importance, moreover the factories in the middle of February 2010 will still have to close up for at least one week. Quite probably the Chinese side has decided to use the NY holidays for a pause and wait for the general clearing up of the situation.

For the Russian producers that pause and those problems with the certificates can only mean emergence of a new factor of extra downward pressure on prices, the decline aiming at brisker sales. According to the results of talks between the largest Chinese buyers and key Russian producers, some of the producers including the largest, allegedly agreed to set the offer prices for headed and gutted pollock at 1400 USD per tonne CAF for China and not to decrease those prices, however for some of the producers, especially medium-size and small, such conditions have been taken as unacceptable due to the need either to fulfill conditions of the current contracts or to increase sales in order to raise the working capital. The discrepancy may lead to the product sales at prices lower than 1400 USD per tonne, weaker resistance of large producers to price decreases and the price fall to less than 1300 USD per tonne. In January 2010 some market specialists have been already speaking about the inevitability of such changes in the market situation and emerging supply from some Chinese processors at prices of ca.1275-1280 USD per tonne.

Pollock roe

In the beginning of February 2010 the general shipments of the Russian products from the season 2009 to main markets have been showing fairly distinct dynamics objectively reflecting the situation directly preceding the start of the new fishing season for roe pollock in the Russian waters.

In December 2009 the Japanese customs cleared 380 tonnes of the Russian products with the import activity dramatically rising both as compared with September-November 2009 and with December 2008. One of the reasons behind such import activity could be attributed to the need of some Japanese processors for extra purchases of the raw material for the New Year production, the demand for which developed more actively than in December 2008, according to some sources. The Japanese specialists evaluating the dynamics of the South Korean import of the Russian raw material in 2009 and focusing on a very large rise of the import volumes think that a considerable share of those purchases was meant for further processing for the markets of South Korea and even Japan as well as for further resale to Japan.

The volume of the December import of the Russian products to Japan increased as compared with the average autumn import volume by more than 150% and as compared with December 2008 it rose by 135%. Nevertheless, even such a strong rise of the December activity has not exerted a strong influence on the general situation with shipments of the Russian raw to Japan.

Due to a serious decline of interest from the Japanese users in frozen pollock roe (not only Russian, but US as well) the general character of the Japanese import of Russian products declined by 19% or more than by 3700 tonnes per year and amounted to only 16,100 tonnes (on the other side, the last year result was much higher than the import volumes in 2006-2007 ranging from 12,200 to 14,200 tonnes).

Such a considerable decrease of shipments has been observed against the background of smaller decline of prices thus once again proving that the interest in the Russian raw has sunken greatly. In December 2009 the average CIF price was approximately 10-20% higher than in the previous three or four months, but as compared with 2008 it was still 26% down at 820 Yen per kilo. In general for the twelve months of 2009 the level of the Japanese import of frozen pollock roe of the Russian origin fell even more, by 31% namely, to only 860 Yen per kilo. The result of 2006 which was also below 1000 Yen per kilo (985 Yen per kilo) looked fairly high against the above mentioned background. Strong exchange rate of Yen to USD misrepresents the price situation, but the decline of purchase prices for the raw material shipped to Japan has turned to be very strong which could be confirmed by official data on Japanese import.

Russian exports of frozen pollock roe to Japan, China and South Korea in 2008-2009

The average import price of the Russian products in China (CIF terms) in 2009 declined by 26% to 8.25 USD per kilo (or ca.790 Yen per kilo under the average exchange rate), and in December 2009 it appeared to be extremely low at only 3.15 USD per kilo. However, the official data of the Chinese customs should be taken fairly softly as it is not certain that only pollock roe has been cleared taking into account a pool of various fish roe under one product category of frozen roe. The volume of the Chinese import came down by more than 20% to only 3400 tonnes.

The average import price of the Russian products in South Korea (CIF terms) in 2009 amounted to only 7.15 USD per kilo, 19% down on 2008. In December 2009 the average price was 26% down on the corresponding result of 2008, though it still amounted to nearly 7.95 USD per kilo. At the same time, activity of the South Korean purchases last year was much higher than in 2008 despite consequences of the world financial crisis.

In the closing quarter of 2009 the South Korean import of the Russian products was stably close to 300 tonnes, and the total import volume in October-December 2009 rose by 75% to 830 tonnes. The import volume for twelve months of the year increased even more by 85% or by 2700 tonnes to ca.5900 tonnes, nearly 500 tonnes up on the result of 2006, which was one of the highest results. Therefore, after such a large scale increase of purchases of the Russian raw in 2009 the South Korean buyers would hardly be as active in purchases of products from the season 2010 and the prices for the Russian raw might thus lose one of its footholds.

On the other side, even a stronger decrease of the Japanese import of the Russian raw and prospects of further decrease of the Japanese imports of products made from the Russian raw and processed in China may make the Japanese side raise its purchase activity subject to a number of factors. If the data on the price rise of processed roe in winter period comes true, the demand for the Russian raw from the Japanese buyers may really increase especially against the downward dynamics of shipments of raw material from Alaska forecasted for coming months. However, anyway the market specialists say that no dramatic price rise should be expected as the low price factor remains the key condition for maintaining brisk sales of processed roe to Japan and a rise of prices for the raw material may only do harm to such activity.