Why Are Shrimp Stocks Down?
Rising raw material costs, falling shrimp prices and increased surveillance by market regulators led to a sell-off in stocks of shrimp exporters and allied companies.
Avanti Feeds Ltd., Apex Frozen Foods Ltd. and The Waterbase Ltd. have declined between 28 and 47 percent so far in 2018 on the back of these concerns. While Avanti Feeds and Waterbase are shrimp feed producers, Apex Frozen Foods exports shrimp.
Feed manufacturers are witnessing a double whammy with rising raw material costs and a slump in shrimp prices. Two key raw materials used to manufacture shimp feed — soymeal and fishmeal — have become dearer by 61 percent and 18 percent, respectively this year.
The rise in raw material prices was benign in 2017, which led to an improvement in margins. That’s not the case this year.
Farmer profitability is under pressure due to falling farm-gate (shrimp) prices. Feed companies are unable to take any hike in feed prices, which has put margins under pressure.Depesh Kashyap, Analyst, Equirus Securities
Shrimp prices have gone down in the last six months due to strong supply conditions in the international market. Prices in the U.S. — India’s key market — have fallen by nearly 10 percent to $9.56 per kilogram over the last six months.
Indian farm-gate prices of shrimp, which is normally in line with international prices, have fallen sharply by 30 percent in the last few months, according to a report by Equirus Securities.
The shrimp industry is pinning its hopes on a rise in demand in the U.S. during the festive season in the second half of 2018, the report said. Exporters are also focusing on other markets like EU and China to maintain growth.
With demand starting to pick up, Avanti Feeds expects normalcy in pricing, the company said in a media statement. With exports to China expected to increase in the coming months, prices will rise, the statement added. KS Choudary, executive director of Apex Frozen Foods said the correction in shrimp prices has come to an end.
Recently, the Securities and Exchange Board of India named over 100 companies that were placed under additional surveillance. The vigil was aimed at checking any abnormal rise in stock prices not commensurate with the financial health of companies. Apex Frozen Foods and Waterbase, which were among the companies named, witnessed sell-offs.