U.S. Shrimp Market: Trade Analysis and Outlook w.r.t Indian Stock Market

The Conviction Club- Knowledge Series Post : Report Date- 12th Jan 2024

Executive Summary
The U.S. shrimp market has witnessed significant turbulence due to alleged unfair trade practices by major shrimp exporting countries, particularly Ecuador. These practices, including selling shrimps below fair market value, have led to substantial financial distress for local shrimp companies in the U.S., prompting trade investigations and the imposition of countervailing and anti-dumping duties by the U.S. government.

Market Disruption and Response
Undercutting by Ecuador
● Issue: Ecuadorian shrimp exporters have been accused of selling their products at 15-20% below the fair market price.
● Impact: This practice, commonly referred to as dumping, has reportedly led to losses and the closure of several U.S. shrimp companies.
Response by US Shrimp Producers Association (USPA)
● Action: The USPA, representing over 75% of local shrimp companies, filed complaints with U.S. authorities.
● Objective: To address the market imbalance caused by these alleged unfair trade practices

U.S. Government Intervention
Imposition of Duties
● Countervailing Duties: Imposed on shrimp imports from Ecuador, India, Indonesia, and Vietnam. These duties aim to counteract foreign government subsidies, like the diesel subsidies provided by Ecuador.
● Anti-Dumping Duties: Imposed on shrimp imports from Ecuador and Indonesia, these duties are meant to counteract the losses caused by selling shrimps at lower prices than the fair market value.
● Rate of Duties: Anti-dumping duties are significantly higher, ranging around 30%-50%, compared to countervailing duties, which usually range from 2-5%.

Expected Outcomes
● Impact on Ecuador: The high rate of anti-dumping duties could potentially destabilize Ecuador’s shrimp industry.
● Benefit to India: India, receiving only countervailing duties, might find a competitive advantage in the U.S. market.

Market Outlook and Investment Implications
Sector Revival
● Projection: By the end of 2024, the shrimp sector is expected to recover, influenced by the reduced competition from Ecuador and potential market correction.
● Indian Market Influence: Indian shrimp stocks might start moving upwards approximately six months prior to the event, anticipating market changes.
Investment Opportunities
● Strategic Timing: The current period may present a favorable opportunity for investing in well-positioned stocks within the shrimp sector.
● Market Monitoring: Continuous monitoring of trade investigations, market responses, and company-specific developments is crucial.

Stocks which can benefit from the recovery in shrimp prices in the US.
1) Apex Frozen Foods:- Apex Frozen Foods is an integrated producer and exporter of shelf stable quality aquaculture products.The company’s operations comprise hatchery, farming, pre-processing, processing, and exporting of shelf-stable quality aquaculture products like shrimp.
2) Coastal Corporation:- The company is engaged in processing and export of frozen aqua and seafood products, mainly shrimps. The key product line consists of sea caught and
aquaculture shrimps, value-added and processed, raw or cooked in frozen blocks or IQF forms, as per the customer specifications. CCL is among the top 10 players in the Shrimp processing and distribution industry worldwide.
3) Avanti Feeds : Avanti Feeds is a leading provider of high quality shrimp feed, best technical support to the farmer and caters to the quality standards of global shrimp customers.The company is the largest producer of shrimp feed in India with a market share of ~45% in the domestic feed business.

Technical Analysis of Shrimp Stocks Index in India:-
Shrimp Stock Index has demonstrated a cup and handle breakout on daily charts,Suggesting a short term bottom. Long Term Fundamentals will only improve when the situation in the US for shrimp prices improves. However, Stocks might move ahead of the fundamental reality, this is what charts are suggesting.

Conclusion
The U.S. shrimp market is at a critical juncture, with significant trade actions reshaping the competitive landscape. This situation presents both challenges and opportunities for market participants. Investors should consider a multifaceted approach, factoring in international trade dynamics, regulatory changes, and individual company strengths.

Note: This report is based on a synthesis of available information and should be used in conjunction with detailed market analyses and professional financial advice. For more detailed research and analysis, consultation with trade experts and market research specialists is recommended.

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