German Perspective - 22.10.14
21/10/2014
This generally would and should be appreciated, because everyone, except traders, is looking for market stability, but it has become a serious burden as the year progressed.
The first quarter was governed by a solid global economy, low interest rates and a world free of any major conflicts. That offered all hopes for higher leather demand and rising prices for leather.
As the year progressed, problems began to dominate. Ukraine, the Middle East, problems in many European economies and now the rising fear in relation to Ebola have sent stock and commodity prices down with the only exception being bovine material, which has been fluctuating very little.
Only the shutdown of the majority of the tanning capacity in China’s Hebei province in spring created a limited correction. Neither the sharp correction of split prices nor any of the other problems made the beef industry believe that this could cause any trouble for the demand for bovine leather.
Even after the start of the new leather season after the summer, very little has happened. For a European supplier, currency has been the first-aid kit, despite the strong rebound of the euro this week.
However, we are still 3% higher than at the end of August and those who played it well had a 5-6% currency influence to market the hides overseas from the second half September until a week ago.
Everyone should be aware that there was no market movement, but just the influence of the currency, which made the market look rosier than it actually was.
The US suppliers are defending their prices with great ambition, but the price levels are eroding slowly, depending on hide types and suppliers.
With the price gap between the US and Europe now beginning to close and the US dollar retreating, the easy time selling hides is over.
From China we hear that the tanneries in Xinji are slowly beginning to reopen and haven’t got many hides to tan. Good news!
At the same time, many banks in China are struggling with bad loans and cannot offer sufficient finance, which delays letters of credit and payments, depending on region. Bad news!
Split prices in China have not recovered and continue to decline, and this is weighing on tanners’ calculations. Consequently, just a handful of big operators are working at capacity and need to replenish their inventory. However, there does not seem to be enough volume to clear the supply of raw hides available at the moment. For the surplus, solutions have to be found, either by price or by storage.
Sales this week were pretty sluggish. As the week progressed, customers were getting more cautious. Bids were plentiful at the beginning of the week, but bids were very aggressive and between $3-5 below asking prices. Prices in Europe were about steady to 2% lower and overseas 2-3% lower. Most of the interest was for low grades, dairy cows and bits and pieces of other material. It is pretty obvious that many tanners are desperately trying to downgrade and buy lower price/quality raw materials.
The kill: The kill remains pretty good. Weights of males are high and seasonal while females are far behind normal seasonal weight, which confirms again that farmers are mainly selling their old dairy cattle.
What we expect: We believe that the pressure on the markets persists. How much this is going to reflect in public offers and price lists - well, this is up to sellers’ policies. However, we feel that the demand for hides is not solid enough for October/November for everyone to sell what they need to. All will depend on whether we are right or not on the supply/demand equation and if the big players believe that lowering prices is an adequate reaction.
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