US Perspective—14.04.09
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
The hide market ended April 9 on a mixed note with a heavy amount of reported trades. Several selections traded at higher prices, but many were steady and a few lower. Packer HNS lighter weights were steady with trades of $27 and $30 while BBS were off 25¢ with reported trades of $25 and $27. HTS ranged from $26 to $28, down 50¢ from yesterday’s $27.50. BS trades at $21 and $25 were up $2 on average.
Cow trades were firm with some at old level and a few up. Most notably, N BC had a high trade of $9.50 and a low $6.50. N HNDC reported up $5 at $22 and N NC up $2.50 with a trade of $12 and one at $17.
Most people indicated on April 8 that business had been slow since the beginning of the week. Packer HTS reported down $0.25 at $27.50 and CBS down $2 at $20. Processor trades were steady to down with branded cows steady at $6.50 and $6. Northern native cows were off $1 at $12 while small packer hides traded up $0.50 for $11 and native bulls were steady at $13.50.
April 7 was another slow day with a few contacts still out of the office and hard at work in Asia drumming up business as well as a few on their way home. There were mostly steady levels reported with kip skins being reported down a dollar. Those who were available on April 7 were mixed as to the bearish or bullish nature of the market this week, but were confident that the end of the week would bring a heavier trading volume. The hide market was very quiet on April 6.
Low spirits
Enthusiasm seemed to have subsided last week as new rounds of reports on the economy dampened hopes of a quick recovery. The Federal Reserve’s policy makers in their March meeting put prospects of the economies turnaround in 2009 into perspective by revising projections for economic activity in the second half of the year and the first of 2010 downward. Minutes from their March meeting said unemployment rates, currently at 8.5%, “will rise more steeply into early next year before flattening out at a high level into early next year”.
Regardless of what business you are in, if it relies on consumers this doesn’t bode well. In our industry, recovery will follow consumer confidence and a healthy economy; unfortunately, when that will happen seems to be pushed back every week.
The USDA Export Sales for the week ended April 2 was quite positive and seemed to be bucking the trend. Sales for hides and wet blue combined—although not as impressive as the past three weeks at 681,000 pieces—were 13.5% over the same week’s slaughter of 600,000. The largest destination for hide sales was China with 40%, followed by Korea with over 26%. The primary destination for wet blue was Italy again for the second week in a row with 41%.
Exports for hides and wet blue were 678,000 closely matching sales, and 13% above the same week’s slaughter. The primary destination for both hides and wet blue was China with nearly 53% of hides and 28% of blue destined for that country.
Stuck in a rut
Judging by the balanced amount of optimism, or pessimism, coming off last week’s APLF, you could probably say the market has not changed one way or another. While most agree that there is a fair amount of business, concern remains that it is insufficient to move the market up to the next level. At this point, the fundamentals of the global economy have not improved sufficiently for leather demand to keep up with hide supply. Current hide supplies remain steady or down only a few points while global demand for leather goods is off much more at 20-30%.
In this environment, the buyers have more to say in today’s market as business dynamics have changed. It is no longer the seller’s market it was a year ago; it is strictly in the hands of producers. A reliable source (a producer) indicates they needed to change their approach, realising the world is different today. The recent build-ups of inventories and declining markets have shown that the tried-and-tested practice of holding back on sales for a week or two will not automatically raise prices like it used to.
After returning from Hong Kong, one supplier commented that if the market could remain steady at these levels for a while it would be healthier for the industry at large. If prices remain steady at these cheaper levels, it will make leather markets more affordable and enable them to expand into areas dominated by competing manmade materials. As an example, even if the auto sector takes several years to recover, more cars could be equipped with leather seats and more leather could be used within the seating components themselves if the price points are low enough to compete with manmade material. As suppliers try to re-establish their market shares, leathergoods at affordable prices could be just the ticket given its perceived value.
Potential for improvement
olding its ownThe side leather shoe business currently is the most solid sector and although off, year-on-year, 15-20%, seems to be leading the market and holding the bottom on prices. Last week the US market was firm and traded up slightly. The sentiment is that it will trade in its current range to down slightly for the next several weeks, perhaps a month or two.
Given the current economy, some within the industry are of the opinion the increased kills this summer will put downward pressure on pricing beginning in June. Pivotal in this equation is consumer demand. Following a four-week rally on Wall Street sparked in part by several positive economic indicators from the financial and housing sectors, is it possible that there are early signs of recovery in the making?
If consumer confidence is better than expected this summer and demand at retail is up, then the short inventories will cause pressure to be put on the supply chain all the way back to the tanners for quick deliveries. This would obviously change the outlook on prices this summer.
