German Perspective - 8.12.15
09/12/2015
After second half October and November when suppliers were able to move product that was weighing on their shoulders - at sometimes very cheap prices - suppliers are feeling comfortable enough to try to push prices a little higher, to squeeze the buyers that might have missed the boat first time around.
Some of them are buying at a little higher prices. It doesn’t make too much difference if you pay a little more than some weeks ago - at a certain point everyone has also to replenish inventory.
However, the situation is far from being uniform. On the positive side for European suppliers, the US dollar rate had gained strength, until the sharp correction on Thursday. There was a steady demand for premium cows and stability had been achieved - at least until Thursday.
The situation is not the same for males. Using international comparisons, these hides are far from cheap - even considering the firmer dollar. Most quality tanners in Europe invoice most of their leathers in euro and are still feeling the pain of lower leather prices on which their customers are insisting.
Prices for these hide types are not falling dramatically, but the higher kill and the stiff headwinds from tanners have been reflected in continuing and gradually declines.
This has been compensated slightly by the increased average weights. The future remains unclear. Leather demand has not increased, low grades are not finding enough interest and apart from the seasonal cycle, leather demand has fundamentally not increased. Most suppliers are trying to remain well sold with the safest clients they can get.
If buyers from China departed for a while the pressure would be back, with prices in Asia and in Europe still far apart. The higher kill of males in Europe has also brought enough material into the market to bring supply and demand into balance, but only a few more weeks at the same levels would quickly create surplus. There are already struggles to find enough tanning capacity to get all the chilled lots moved.
Carmaker Volkswagen reported lower sales despite all the others running well, and VW is shutting most German production lines down for an extended period of four weeks over Christmas.
There have been mixed reports about Christmas shopping while the trade sanctions from Russia against Turkey will have their effects too. Maybe China will benefit from this by supplying more to the Russian market.
Sales over the week were far from brilliant and only cows were able see some – although declining – interest from China. Prices were stable for cows and under pressure for bulls.
The kill: The kill continues to be steady on high levels with increased weights and this should continue until Christmas. Males have increased again in the slaughter mix.
What we expect: If there was not speculative interest to move cow prices (upside) we would say that every serious player is happy to phase 2015 out without any further changes. The fundamentals have not changed and stability is the best for the industry at this stage. Whether speculators have the strength to move this market or if tanners allow this to happen remains to be seen.
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