Why the salmon bubble burst

By Marius Gaard, Carnegie seafood analyst and author of Mysalmon.no

It was like a house of cards. During a few critical hours in the middle of last week, the salmon prices collapsed around NOK 8 to NOK 41 per kg. Enough to become the single largest weekly drop in a decade, the collapse came after weeks with continuously higher salmon prices and higher export volumes.

It is not complicated. The salmon price collapse has one simple reason: the burden that Norwegian farmers and exporters have put on existing clients in the European Union - both before and after the Russian import ban - became too much to handle at peak volumes and peak prices in week 51- 52.

Russia implemented the import-ban in week 31, but keep in mind that Norwegian exports to Russia were already down year-on-year. In addition, countries like Ukraine, France, Japan and Vietnam had already cut imports y-o-y by quite significant numbers.

Nonetheless, up to the day where the import ban was implemented, Norwegian fresh salmon exports were up by 35,000 metric tons (8%) y-o-y, and basically all volume growth as per week 31 was absorbed in Europe.

Hence, even before the import ban, exports to EU were already up 12% y-o-y. And only small changes were seen in trade flows to Asia and Eastern Europe.

What global market?

What happened between the import ban in week 31 and week 49 (the week before prices collapsed) is interesting.

In spite of the Russian import ban, Norwegian farmers exported approximately the same volumes between week 31- 49 in 2014 as during the same period in 2013. Hence, per week 49 Norwegian exports were still up only 34,000t y-o-y.

What's different this year, of course, is that Russia, which purchased 40,000t from Norway from week 31-49 in 2013, is not there.

So to what markets have the Russian volumes been directed?

As the next chart shows, the burden on EU has continued.

By week 31, EU had grown imports by 35,000t y-o-y. By week 49, EU had grown imports by 70,000t (13%) y-o-y. Asia remains more or less unchanged.

And without France, which has heavily cut imports YTD, the change in exports is concentrated in quite few "emerging" markets.

In fact, countries like UK and the Netherlands have had to grow imports by more than 30% YTD in order to cover for Russia's shortfall. Six EU countries (20% of EU) have taken 58,000t (80%) of the additional volumes in EU.

Year to date increase in main export markets in the EU. From left: UK, Netherlands, Poland, Spain, Italy, Germany, Denmark, France

So why did the bubble burst in week 51?

Assuming that another 3,000- 4,000t of salmon was available in the market in week 51 and 52, it is not difficult to understand why volumes simply became too much to handle, considering that prices were at a peak NOK 49 per kg.