German Perspective—26.05.09
26/05/2009
What happened this week: Well, we have to admit, that our recent view of the market does not coincide with what seems to be happening every week now. Week by week market sales volumes are inflating. The driving force behind it remains China with positive news about the consumer market and an increasing number of low-profile buyers entering the scene, trying to secure high-quality raw materials, even though they have no clue what they can expect from it.
At the moment, it is not the first-class buyers who are making the market, but rather the triple-C society. In any case, what applies to the buyers can also be said about the sellers and a lot of ‘the usual suspects’ have come back into the market to try to set it on fire. There is nothing better for many people than a market that is rising because this still gives the opportunity to get away with the little tiny games that make the margin.
However, there are a lot of things that are making the market at the moment apart from the Chinese demand, which is at least questionable in its quality. Also in Europe we have a number of tanners that seem convinced that hide prices will never go up again and that sellers will be overloaded with stocks for ever more, allowing them, the buyers, to pick and choose and to continue to dictate prices. No argument has been strong enough to make buyers analyse the situation with less emotion. They could not accept that top-quality hides, even extra heavies, have found new interest and fans.
These tanners were so busy dealing with their own problems, believing that their lack of business was a reflection of the global market, that they missed out on replenishing stocks in time. They now have to come into the market in a period in which heavy and good-quality hides in Europe are not being produced in sufficient numbers, not matter how good or bad the market is.
In the end, those who had an interest in seeing the market going up were pretty happy to see things moving. What is a bit of a shot in the arm, as far as bull hides are concerned, has been the sharp decline in the value of the US dollar, which supports exports from countries that work on a dollar basis, but is quite a headache for those that don’t.
They will have to put prices up by another 2-3% just to compensate for the currency move of the past days and it is doubtful if buyers will readily accept this.
So, for exporters from Europe, the week was pretty much a non-event as far a returns in euro were concerned. And so it remains a bit of a mystery what was behind the latest enquiry bonanza. A lot points in the direction of it being a bit of everything.
The news about the strong performance of the Chinese consumer market, the decline of the US dollar, which tends to let commodities rise, latecomers who fear that they could have missed their chance of cheap hides, and the belief that the global recession could be over before it has really begun are all factors. Last but not least, there is the interest of sellers to protect their contracts with higher market levels and to push price-levels up, to have the chance of getting something back from the buyers who failed to honour their contracts when the market collapsed last year.
The only thing that could be a real driver for the market, rising demand for leather, is however missing from the list.
Sales were decent this week at steady levels for cows and up in money for bulls.
The kill: The kill: We are in May and this is traditionally the lowest season of the year. Presently we see a big portion of cows and very low quantities of males in the mix.
What do we expect: No matter how good volumes may look, we will suffer from the weak dollar and this will keep prices under control. From the EU market we still do not see any stimulus and so we have to continue to live from week to week checking the demand from Asia. Shipping space is another problem we need to watch, and we assume that prices will remain steady at the top of the trading range. This is something we have been seeing already for a while.
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