Will seafood exports recover in the second half of the year?

Processing seafood for export at Thong Thuan Company. Photo: T.T

Decline in exports, negative profit

According to Truong Dinh Hoe, General Secretary of the Vietnam Association of Seafood Exporters and Producers, businesses in the industry are currently facing significant difficulties, with a decrease in orders due to weakened demand from major traditional markets affected by inflation.

Seafood exports are forecasted to continue facing challenges, and companies have to reduce working hours to sustain operations. "The seafood industry's export target for this year with a value of US$10 billion will be difficult to achieve, as by the end of April 2023, seafood exports only reached more thanUS$2.6 billion, a decrease of 31% compared to the same period in 2022.

According to an analysis report on the seafood industry by VNDirect Securities Company, the net profit of seafood export companies decreased sharply by 74% compared to the same period in the first quarter of 2023, due to weak demand in export markets and a high base in the first quarter of 2022.

The business performance of seafood companies has declined significantly in the early months of 2023. Estimated total revenue in the first quarter of 2023 for listed seafood companies has decreased by 32% due to both average selling prices and export volumes declining significantly. The industry's gross profit margin narrowed by 5.1 percentage points due to a decrease in average selling prices while production costs remained high. As a result, the net profit in the first quarter of 2023 for these companies decreased by 74% compared to the same period.

Previously, SSI Securities Company predicted that the average selling price of seafood would decrease by 20-30% compared to the same period in 2023, and the cost of seafood feed would also decrease accordingly. With slow growth in order volume, the supply of raw shrimp and fish will not be in shortage, resulting in a slight decrease in shrimp and fish raw material prices due to weak demand until the end of the first half of 2023.

The gross profit margin is expected to decrease in 2023. With expected high interest rates throughout the year, increased financial costs will continue to impact net profit margins, especially for companies with high leverage ratios. SSI predicted that companies would announce negative profit growth rates in 2023.

The US market is expected to recover

The seafood consumption demand of US citizens has been affected by high inflation and economic downturn, leading them to tighten their spending even on essential consumer products such as food.

Hotels and restaurants, one of the main channels for seafood consumption, also have a bleak outlook in the near future. The Restaurant Performance Index (RPI) of the US National Restaurant Association decreased by 1.0% in March 2023 due to restaurant managers' expectations regarding business conditions, sales growth, and the overall economic outlook in the coming months. Only 46% of restaurant owners expected their sales to be higher than the same period in April 2023, down from 60% in March 2023, indicating that the short-term prospects for the restaurant segment were still not optimistic.

The import of seafood to the US market has recorded a respective decrease of 10% and 18% in import volume and value; high and prolonged inflation in the US has led to tightened household spending, indirectly affecting seafood consumption demand in both the service and retail channels; high inventory levels since 2022. Therefore, Vietnam's seafood exports to the US also decreased by 51% in the first four months of 2023.

Experts predicted that the seafood demand in the US was likely to recover from the second half of 2023 due to easing inflation, reduced inventory levels, and high demand for year-end festivities. This is expected to help Vietnam's seafood exports to the US increase by 40-50% in the latter half of the year.

Additionally, the Chinese market has not recovered as expected after fully reopening. According to assessments by VNDirect Securities Company, China has fully reopened after three years of implementing the "Zero-covid" policy, leading to a 13% increase in seafood imports in the first quarter of 2023. However, the export value of Vietnam's key export products such as catfish and shrimp to the Chinese market has sharply decreased by 68% and 30% respectively in April and May 2023.

The reasons, according to experts from VNDirect Securities Company, for the decline in Vietnam's shrimp exports to China are competition from countries with cheaper shrimp sources such as India and Ecuador, as well as the unpredictable macroeconomic environment of the Chinese economy and intense competition from other countries. Experts predicted that seafood exports from Vietnam to China in the second half of 2023 would not experience strong growth compared to the first half of the year.

With the main export markets still affected by various factors, it is forecast that most seafood export companies will report negative net profit growth in 2023 due to decreased gross profit margins and the high base of 2022.

However, the experts from VNDirect Securities Company believed that the current subdued prospects of the industry in 2023 have been somewhat reflected in prices as shares of listed companies have fallen about 40-60% since the peak in the second quarter of 2022. With expectations of recovery in demand from the US market in the latter half of 2023, many leading companies in the industry are expected to benefit significantly from this market recovery.