US Perspective—07.07.09
08/07/2009
MARKET INTELLIGENCE—07.07.09
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
US unemployment numbers for June sent shivers through Wall Street. Job losses for June were 467,000—well above May, with 322,000, and economists’ predictions of 350,000. This increases unemployment from 9.4% to 9.5% and is a reminder that we have a long way to go before recovery is achieved.
In the hide and leather business, the US Department of Agriculture has reported sales and exports for the week ending June 26 that were down considerably from previous weeks, and closer to expectations of industry professionals who had predicted slow sales for the past several weeks. Sales of tanned hides and wet blue for the week were 469,600, falling short of slaughter by 176,000 pieces. Exports did considerably better at 582,000 but still fell short of the week’s slaughter.
During the week, whole cattle hide sales were 451,000 and were impacted to a small degree by cancellations numbering 32,691, ending with gross sales of 483,691. Most of these adjustments came from China (12,820), Taiwan (7,632), and Argentina (3,084). There were adjustments to unsplit wet blue sales reported, with the Dominican Republic (12,000) and China (10,800) the markets involved.
Year-to-date exports of combined hides and blue are 16,777,000—virtually identical to the same period last year at 16,778,000. Sales on the other hand are ahead this year by 625,000 pieces, with 2008 at 16,995,000 and 2009 at 17,621,000. And to add a dimension of interest to these statistics, slaughter this year is around 700,000, or 4.1% behind last year.
In a normal economy the strong sales, good exports, and low kills would probably have the market on fire. Unfortunately for all involved—from tanners and traders to producers—the global recession has more than dampened the markets, digging deeply into the leather business in all segments. In spite of the recent rally in the hide market boosting hide prices nearly 50%, they are still 40% under their trading ranges of less than a year ago.
Trading towards the end of the week was slow as the US prepared for the July 4 holiday weekend. Prices were relatively steady with a new high on HBH at $32 and no new lows established.
The hide business continued to be subdued for most of last week with sellers in a strong forward-sold position not offering very many hides and waiting for buyers to come to them. Prices understandably remain firm and are expected to either maintain these levels or climb slightly this week.
The Jacobsen Price Guide for the last two months demonstrates a 46% increase in the price of HNS from $26 in early May to $38 at the end of June. Some HNS reports this last week were as high as $41.
Modest improvement
Auto leather tanners are noticing a bump in business in part due to the modest improvements that car manufacturers reported in their June figures and the fact that inventories have finally been brought in line. One source in Europe indicates that several auto tanners are buying all they can with little regard for price, which is causing uproar in the industry. US auto tanners are also enjoying better business, in turn creating demand on HNS and bolstering that market.
The shoe leather business continues to be slow. Sources report that orders dried up a couple of weeks ago to similar levels back in February. This is backed by a recent Reuters report on the retail shoe business that says shareholders of major shoe brands were disappointed with the outlook for sales until early next year, sending shares of Nike, adidas, and Puma down last week.
With the leather business slightly improved in the auto sector and limping along in the side leather and upholstery sectors, the hide market continues to build momentum and strength, contrary to time-tested supply-demand rules. This is what most pundits are grappling with.
What is driving this surge in demand? Could anticipation for September production increases be causing tanners to secure supply? Or is it possible that fear of the market climbing to more normal ranges is driving demand? In all likelihood, the answer is a combination of these and a few other factors, but the reality is that the market is definitely bullish in a bearish economy.
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