German Perspective - 10.2.15
What happened this week: Despite all the uncertainties within the eurozone, the financial markets have taken a break after the sharp corrections we have seen since the beginning of December. The massive decline of the euro has come to a stop, the oil price is rebounding and financial institutions are struggling more than ever to predict the future. Asia is beginning to wind down for their major annual holiday and it is still a struggle to organise shipments and to obtain timely payments knowing that people and banks will hardly be working in the weeks to come.
Booking shipments for raw hides is becoming more and more difficult, at least when we talk about timing. It's not too long ago that you could choose from multiple departures of vessels every week and to get hides on a boat within seven to 10 days was not a difficult task. Now a timeframe of three to five weeks has to be considered and even then one cannot be 100% sure that the containers will be on the vessel booked.
We are not facing the same problems one can see in the US due to the strike, but the seamless flow of shipments has become far more difficult with the Christmas holidays in Europe and the New Year holidays in Asia. This makes it increasingly difficult to judge the inventory position of tanners for the coming months.
If we consider that in the coming three to four weeks, soakings in Asia will be pretty low, and when we look at when it's going to be shipped combined with the slow speed of incoming payments and letter of credits one has to be suspicious about the volume of leather orders tanners have or are expecting for the coming months.
Certainly, drums will always roll and the flow in the pipeline will never really stop but for the time being one can't see too much enthusiasm about the business as such. This rather cautious view on the situation is conflicting with the numbers reported in the US. Checking these numbers in January one has the opinion that leather demand is rebounding and more raw material is required. But this seems unlikely, on top of the price correlations that have made US hides not particularly attractive recently. We have to watch it very carefully, because it means so much for the trends in our market. We have been sheltered by the currency movements and by the high prices from overseas origins and this combination was allowing us to safeguard euro revenues despite the fundamental pressure on the global hide and commodity markets. These tailwinds have now disappeared and we have to find our fair market valuation again and cannot hope for the financial market to get it right, so sales and activity this week can just be described as moderate.
Business and interest in Europe was pretty slow and Asian buyers were trying to fish around in the hope that there would be some sellers still desperate and willing to accept lower bids. The majority of buyers however were winding up and planning their holidays.
It is interesting that for the first time in a while the interest for male hides out of China was bigger than for females and we can hardly recall this ever happening. However, this is also a reflection of the situation in the north of China (Hebei) and at the same time classic shoe tanners obviously trying to purchase reasonably attractive European hides against the threat of prices and shipment from the US. What has been sold was pretty much at unchanged levels.
The kill: The kill is falling and due to carnival we expect the next two weeks to be quiet.
What we expect: Anything other than a quiet period ahead of us would be a surprise. We don't think it will change much, because fundamentally most players are pretty happy with the way it is at the moment. With the major markets going on holidays and the carnival season for others, a steady situation is pretty likely and definitely the best option. The question is how well the Asians are covered and how long they can stay out of the market. Sellers will hold steady.
