Cautious optimism ahead of 2003 / 2004 mackerel season

N O R W A Y

According to Norwegian figures for the first four months of 2003, total Norwegian exports of mackerel dropped by 22 per cent to 50 834 tonnes compared to the same period in 2002. However, this reduction was due to reduced exports of mackerel less than 600 grams as exports of mackerel above 600 grams more than doubled. Looking at exports for the two other main suppliers of Atlantic mackerel, Scotland and Ireland, these countries also show increased exports of large mackerel. This changed composition in trade reflects the fact that catches in the period August 2002-January 2003 contained a surprisingly big quantity of large mackerel.

The 2002 export figures for the EU show, in contrast to the situation in Norway, increased total exports of frozen mackerel despite the reduced catch quotas. This should be seen in the context of continued reduced landings in Norway of Scottish and Irish mackerel as the domestic EU industry continues to offer competitive prices for raw material.

As regards prices, Norwegian exporters saw an average drop of 11 per cent during the first quarter of this year compared to the same period in 2002. In contrast, EU figures for 2002 show an average increase in prices by 6 per cent (EUR/kg).

Prior to the opening of the mackerel season by Norwegian vessels in August, industry players send mixed signals as regards the size of their inventories. In general, EU exporters may have some inventory of bigger mackerel since the market already had absorbed unusually large quantities of this size from Norwegian suppliers prior to the peak in EU catches. One the one hand one could expect that Norwegian suppliers would have relatively low stocks of mackerel as the pelagic sector would have had incentives to sell relatively more mackerel last season in order to provide cash flow for herring for which the market situation was dramatic. On the other hand the unusual high catches of large herring could have led to a build-up of the product also in Norway.

Japanese figures for inventory of mackerel per late February this year show a minor decrease compared to January and a minor increase compared to February 2002.

O U T L O O K

Looking towards the season starting in August there are several reasons for the industry both in the EU and in Norway to hope for some profitable months. Japan had a total increase in its imports of mackerel in 2002 (17 per cent) apparently without building inventories. Even though the Japanese economy is expected to perform poorly also throughout the latter part of this year there are, according to an analysis from the Norwegian Seafood Export Council, indications that Japanese consumers demand relatively more mackerel in difficult times since mackerel is a relatively cheap product compared to other seafood products. Regarding the other major markets, in particular Russia, Ukraine and Poland, it is expected that positive economic developments in Central and Eastern Europe will pull in the direction of higher demand for seafood in general, including mackerel.

Competition among the main supplying nations is expected to intensify, especially on the Polish market. The EU industry is gearing up its focus on Poland as tariffs are gradually reduced (from the initial 20 per cent on mackerel) to zero in preparation for Polish EU membership as of 1 May 2004. In the mid-term this will give Scotland and Ireland the possibility to compete on more equal footing with Norway that enjoys zero tariffs on its exports to Poland. Upon accession of Poland to the EU the other EU members will gain advantage over Norwegian exporters who will face a system composed of duty-free quotas and tariffs.

The increased general competition will, at least to a certain extent, be counterbalanced by reduced TACs. The total EU quota for Atlantic mackerel for 2003 is 384 000 tonnes, down from 431 000 in 2002 while the Norwegian quota is down from 182 600 tonnes to close to 150 000 tonnes.

There are preliminary indications that this year's catches may contain a higher percentage of smaller sized mackerel compared to last season. If so is the case, this would facilitate better prices for the larger mackerel currently in stock.

As regards developments in the main currencies, Norwegian exporters in particular suffered from a strong domestic currency throughout the previous season. The Norwegian Central Bank reduced the Norwegian interest rate sharply during the first months of this year and has sent clear signals about further cuts in August. The Norwegian kroner has subsequently weakened against the key currencies and created some more optimism in the Norwegian industry. However, the low economic growth rates in Western Europe and the US could induce further reduced interest rates also for their competitors.