Double, single frozen pollock price convergence has China processors worried

At the same time, prices for headed and gutted (H&G) pollock raw material from Russia, where the Sea of Okhotsk portion of the fishery is now certified to the Marine Stewardship Council (MSC) standard, are steadily rising and are now at between $1,630-$1,650 a metric ton, depending on terms of delivery.

“Based on this price, the cost for a twice frozen pollock block is over $3,000t,” said a source with one Chinese processor.

“Since 2009 or 2010, the price difference between double and single frozen is not large and now, almost equal,” said another source in China. “More and more final users are turning to single frozen.”

On large contracts, the second source said double frozen prices are around $2,800t-$2,850t, but can be $3,150t-$3,250t, cost and freight, if the deal is only for one or two containers, he said.

Because of slow fishing, the Russian H&G price often rises at the end of the year, having hit $1,650 in November 2011, according to the Undercurrent prices portal. In 2012, the prices in November were lower — at around $1,450t — but were still the highest seen that year.

The difference in 2013/2014 is Russia is now MSC-certified for the Sea of Okhotsk fishery — which has a quota of 885,000t of the Russian total of 1.62 million metric tons for 2014 – and is looking for higher prices, as a result, sources said.

US prices for MSC single frozen, pin-bone out (PBO) pollock, meanwhile, are in decline. Having been as high as $4,500t for the A season of 2009, prices are now down around 32% from this level.

Sources told Undercurrent some US companies are selling PBO blocks at $3,000t-$3,050t in B season of 2013, depending on terms of delivery.

The result of this is “there is no room for Chinese processors”, the China-based source, who owns plants in Qingdao, said. “Because of this situation, Chinese plants have no interest to buy pollock raw material at this high price level,” he said.

The Russian pollock price “has to drop in January, when the new season starts”, said the source. “Otherwise, Russia will not be able to sell their fish, unless Russians have capacity to process all these fish, but this is not possible.” Many China processors are planning to reduce pollock production, due to losses, said another Qingdao-based source.

With the H&G price where it is, compared to the double frozen block sales price and the US PBO price, processors “are losing seriously this year”, she said. The current price level for H&G is not sustainable, she said.

“Russia expects a high H&G price with MSC, however, the fillet price does not support this, at all,” she told Undercurrent. “As a producer, there is no way to make money.”

Slow catching and low volumes have mainly driven the increase in Russian H&G prices, typical for this time of year, when the weather is bad and most of the quota has been caught.

The hope for Chinese processors is, that prices will come down, when catching in the Sea of Okhotsk starts up again.

“The new catching will be starting soon, let’s see the starting price,” she said. With the low PBO prices, the prices for H&G must drop soon, said a Russian source.

Choice between single and double frozen fillets could move to double frozen due to price, for double frozen is always lower than for single frozen, he said.

An American pollock source agreed, saying the closeness of prices between double and single frozen is an artificial product of when contracts are being agreed and renewed.

More fundamentally, sources feel that many in China are moving out of the business, a trend that was mentioned by several exhibitors at the recent China Fisheries & Seafood Expo in Dalian.

In Qingdao only, some 20-30 pollock processors have closed down in the past year or two, while the number in Dalian could be even higher, one processing executive told Undercurrent, at the show.

This could mean that, even if the price has dropped for H&G, there is much lower processing capacity in China.

“There is a concern that there won’t be the processing capacity in China to produce all the double-frozen pollock,” said the US-based source.

Two Dalian-based sources said pollock processing in the region is going down, especially for Russian H&G. This is more due to low availability, than prices, said one. “Processors still have orders, but they don’t have materials.”

The second source said they have stopped pollock processing, due to high prices, and low availability. “Right now we are stopping processing pollock until we can buy new raw materials from Russia.”

‘Hot’ production

In the short term, production in China in general, is strong, to meet “hot” orders from Europe, before the plants close for Chinese New Year, starting at the end of January 2014, one Qingdao executive told Undercurrent.

Orders are for pollock, cod, haddock, hoki, almost all whitefish products, said the source. “Last week, I visited several companies, all full production.”

This is “good news, but everybody is waiting to see the pollock H&G situation in January”, he said, reiterating the point made by all the processors canvassed by Undercurrent.

“Many people also worry about the supply of non-MSC pollock H&G” — at a lower price more in line with the final products — because Russia now has MSC for the Sea of Okhotsk, where fishing is mainly in the A season, he told Undercurrent.

The source, who has got out of the pollock business himself and moved into salmon, said friends of his in the sector are thinking the same thing.

“My friend said, if non-MSC price increases too much and is in short supply, he will close the plant, because more production means more losses,” he said.