Analysts with Norwegian bank Nordea have revised their salmon price forecast upwards for 2019, pointing out they "now expect lower year-on-year supply growth and a further increase in salmon prices".

"Our new price forecast for 2019-21 is NOK 64 (€6.70) per kilo," the bank wrote in a new report released this week. "The market is able to absorb 6-7% more fish at stable prices. As a consequence, we expect a 5% increase in prices in 2019 despite 4% supply growth. Accordingly, we expect salmon prices to rise from NOK 61/kg in 2018 to NOK 64/kg in 2019," Nordea's new report reads.

The forecast was based on a 4-5% supply growth estimate, and similar demand growth. "This is NOK 2[/kg] higher than our previous estimate[...] We expect prices to vary massively between weeks, months and quarters each year, just as we have seen during the past couple of years," the report also said.

Chilean salmon farmers' perspective

Salmon prices are expected to remain stable, at relatively high levels, considering that demand is growing faster than supply, agreed Daniel Montoya, sales director at Salmones Blumar, although pointing out that the salmon industry can always be impacted by sudden events, such as algae blooms etc.

Chilean salmon farmers, expecting net profits in 2018 for the third year in a row, have substantially increased their sales to China and Russia, Montoya told Undercurrent.

Stronger demand in those markets, as well as from other Southeast Asian nations and Latin America, are expected to maintain prices at around this year's level, according to the executive. Brazil, Mexico, Argentina, and Colombia also have the potential to grow demand, he noted.

Meanwhile, salmon prices in China fell from a peak reached earlier this year, when local authorities had blocked illegal smuggling of Norwegian salmon through Vietnam. Prices of fresh salmon in the largest Asian emerging market have now dropped below $10/kg, down from up to $11/kg in April-May. Some Chilean firms, like Blumar, have doubled their sales to the country compared with 2017, Montoya also said, pointing out that sales of fresh sales were increasing quicker than the ones of frozen fish.

Prices of frozen salmon in China and Russia have also followed the recent months' bearish trend, but in recent weeks the trend has changed and prices are expected to increase, as we come closer to the holiday period at the end of the year.

Salmon companies' evaluation

Nordea's report also noted out the sector value was too low, as it increased its average EV/EBIT [enterprise value/ earnings before interest and taxes] target from 9x to 10x for most of the companies it covers.

"Looking at valuation, the sector is priced at a 12-month forward P/E [price/earnings] of 13x on average, whereas a peer group of international food and beverage companies is currently priced at 19x. We argue that the cap on global production is muting the traditional cyclicality, which should prompt pricing more in line with non-cyclical food producers," Nordea said.

Nordea also highlighted Marine Harvest as its top pick in the sector, as in its view "the share is attractive as it offers high yield, is by far the most liquid name in the sector and has lagged behind other names recently" it said.