German Perspective—14.07.09
14/07/2009
GERMAN PERSPECTIVE—14.07.09
What happened this week: The week was again more active than what we expected and the market is developing a pattern that we actually don’t like. The hide market has been correcting itself for three months from the sharp declines after last year’s phenomenal crash. In particular, Chinese tanners and international traders have decided that hide prices were too cheap and so investments into hides, and other commodities too, started to turn prices around.
A price-correction of 20%, in particular for better-quality hides, like the ones from Europe or the US, could neither surprise anyone or provoke any justified complaint. In the meantime prices have gone up by 30-45 % and in Europe even more than that at the abattoirs.
This is an ambitious bet on the short-term future as this would mean that the real market needs to climb a fair bit further to justify these levels. So far, position-taking and mixed calculations can be taken as the justification for the sharp rise, but now the prices need final justification not only from the volume of leather orders, but also by the prices for the same.
Although nobody is admitting it, the recent sharp rise in prices suits a great number of people because there are still big volumes of semi-finished products parked in the pipeline that, even today, look pretty expensive as they date back to pre-crash times. In particular medium and low upholstery selections are still plentiful and they require much higher raw-material prices to get back into any kind of a realistic valuation. This applies not only to wet blue producers around the globe, but even to some tanners who have restocked in time with cheaper hides and who would appreciate being able to put prices up ahead of the new production season starting after the vacation.
On the other side of the coin we have also a large number of tanners, in particular in Europe, suffering from cash restrictions, and the sharply declining covers from credit insurers will quickly become quickly a problem when invoice amounts are rising. Anyway, as long as cheap finance and access to credit in China is triggering further investment into hides in expectation of a strong recovery of leather demand in 2010, the possibility of a major set-back in the market is limited. Only a return of financial issues after the summer is a serious threat to the market.
Trading this week was reasonable, with persistent interest from China added to that of some automotive tanners still looking to close gaps for July production before the shut-down for the summer vacation.
Prices advanced moderately again. As far as the interest from China is concerned, we still don’t like the quality of the customers. If one realistically looks at the interest, it is mainly from low-quality clients, small tanners, or import-export companies still chasing hides. The top players are around, but neither are they readily paying the present market levels or ready to be the active force behind the market firmness that is adding to our scepticism about the solidity of the market rise for commodity hides. For top-quality hides it might be a bit more solid due to the limited supply.
The kill: Very low and still falling. Some slaughterhouses have cut production by a day or two. For the coming weeks it seems that the situation will probably further deteriorate.
What we expect: The market has caught fire for the time being and the number of optimists has increased over the past weeks. There is little that will temper the conditions in the short term. It does not, however, remove our concerns that the market has moved too far for now. Optimism comes too early in the season and needs confirmation after the summer to settle the trend and prices.
| Type | Weight range | Avg. green weight | Salted weight | Avg. weight salted | Price per kg green weight | Trend |
| Ox/heifers | 15/24,5 kg | 22,0/23,5 kg | 13/22 kg | 20/21 kg | € 1,30 | Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,00 | Steady | |
|
Dairy
cows |
15/24,5
kg |
22,5/23,5
kg |
13/22
kg |
20/21
kg |
€ 0,80 |
Steady |
|
25/29,5
kg |
27,5/28,5
kg |
22/27
kg |
25/26
kg |
€ 0,75 |
Steady |
|
|
30/+
kg |
33,5/35,5
kg |
27/+
kg |
29/31
kg |
€ 0,70 |
Steady |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,15 | Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,05 | Steady | |
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 0,90 | Firm | |
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 0,50 | No interest |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 0,50 | Steady |
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