US Perspective—02.06.09
Courtesy of www.thejacobsen.com
Market activity and analysis
Last week ended with the market steady showing a small amount of strength which was reinforced by Friday’s USDA export report. Most people in the industry were thinking sales would be mediocre, but the report was surprisingly stronger than expected for both exports and sales. Combined blue and hide sales for the week came in at 820,000, exceeding slaughter of 678,000 by 142,000 pieces. The primary destinations of the 185,600 wet blue sales were China and Italy with 50,600 and 32,200, respectively. For the 635,000 hide sales, primary destinations were China and South Korea with 314,200 and 159,000.
Exports, although not as impressive as sales, were also strong with a combined 765,000 hides and wet blue pieces. This exceeds slaughter by 87,000 and continues to place sellers in a stronger position by reducing inventory further. On May 14 we reported that by taking into account 25,000 hides per week for domestic production plus year-to-date exports and slaughter, 586,000 more hides were consumed and exported than were generated. The 87,000 pieces add significantly to this reduction of inventory for the year.
Up until Thursday, prices reported were steady with the previous week’s. However, on Friday some trades came in at new highs for the week on certain selections, most notably on HNS and HNH respectively at $37 and $27.50.
Prices rise
Business has been reported to be ‘spotty’ up to Thursday. Although there was limited interest from China, it was dampened by the higher prices. One source reports bids for HTS at $37/$38 cost and freight to Asian ports that were rejected by the seller. After the huge buys over the past several weeks, suppliers and buyers are not anxious to do business off their target prices. Sellers are able to turn down low bids and buyers are holding off from higher prices. One trader reports they are doing some steady business with good customers but on a limited basis.
In China, business is still off in the three major leather categories—automotive, upholstery and shoe. The shoe business continues to be strongest but appears to be softening. Recent orders have slowed down following an improved, but only fair, March and April. Tanners who bought heavily in the past several weeks to replenish stocks at low prices will likely take a wait-and-see approach.
A moderately large volume of trades was reported on Thursday. Of those trades, 47% had price decreases, 21% increased, and 32% stayed the same from previous trading.
Curious circumstances
It is difficult to imagine why any branded steers ($27-$33) are selling at higher prices than HNS ($30-$31.50) as reported on May 26 in the Jacobsen price guide. We cannot think of any technical reason why a tanner would prefer a side brand to no brand. Granted, the whole hide auto market has been hit harder than most side leather business and the premium enjoyed for natives has recently narrowed; but to see trades for BS higher makes you think there must be some compelling reason.
Taking yield out of the equation, several suggestions bandied about include: 1) the BS sales are for longer deliveries than HNS and the trades are speculative; 2) these are price averaging adjustments for undelivered, cheap orders; or 3) buyers do not want to “spoil” their factories with higher yielding, better material. Judging from the range of recent branded steer transactions, not all are sold at a premium. In fact, many in the trade agree that there is still a drag on the market for BS and CBS. Most, if not everyone, would agree an HNS is more valuable than a BS which makes recent trades quite peculiar.
There were reports that some sellers are beginning to renegotiate prices upward on old sales. It is not surprising that the newly defined rules of engagement have been broadened to include the sellers as well as the buyers, given the looseness of contract adherence within the trade over the past seven months.
Prices continued to be firm last week. Many packers and traders were offering on a limited basis, filling in gaps. A modest number of trades was reported on May 27, most with steady prices but several at new highs.
The international market
UK
Last week followed a similar pattern to the previous with continued good enquiry from European and Asian tanners. Asking prices increased due to the weaker dollar and low availability in Europe. Some tanners agreed these prices whilst others are adopting a wait-and-see approach. With much of Asia on holiday until the weekend, it was anyone’s guess as to whether the latest offers would be accepted.
Australia
In the overseas market, Australian traders were asking sharply higher prices in line with the US offerings. There was resistance to the higher pricing and most buyers were holding out with lower bids. After paying up a couple of dollars, not many tanners were willing to pay the newest increases.
Many Australian suppliers are enjoying the best forward position in around eight months and are not compelled to lower prices. Bids $0.20 per average lower than asking prices were met with a firm “pass”—no attempt to negotiate or compromise.
In the domestic market, there was no change in price in southern Australia; however, as a result of the rise in the A$ against the US$, prices were up $0.05 per kg. This currency rise has resulted in the opposite effect on the export market, making them seem a little less attractive. Unseasonably heavy rains and floods in New South Wales and Southern Queensland are tightening supplies.
Health certificates needed
The US Hide, Skins and Leather Association (USHSLA) sent a notice to its members last week regarding information pertaining to the Italian government’s requirement for a new additional health certificate (Amendment EC 103/2009) for any exports of US hides and skins. The certificate asks for verification relating to specified product derivatives and slaughter techniques.
USHSLA asked any members with shipments on the water en route to Italy to let them know as soon as possible so they could alert the USDA’s Animal and Plant Health Inspection Service (APHIS). For further information visit www.aphis.usda.gov/regulations/vs/iregs/products/product_european_union_reg.shtml.
