German Perspective—21.07.09
21/07/2009
GERMAN PERSPECTIVE—21.07.09
What happened this week: This week was pretty much a carbon copy of the previous one. The market for better-quality hides is still pretty strong and prices this week were able to hold the levels and in some cases even gain an additional fraction mainly for male hides. While Europe is already almost completely in holiday mood, Asian tanners are still actively searching for hides and any offered to them are readily snapped up.
Offer and supply remain the determining factors for the present market conditions. The kill is touching the lows of the season now, and on top of that we are seeing a lot of suppliers offering only limited volumes, if anything, because they are either already sold forward or so impressed by the recent market movement that they prefer to hold the few hides produced in the expectation of further gains later this summer and after the holidays.
What we are seeing today is, that Chinese tanners haven’t lost their appetite for better-quality hides despite sharply higher prices. Some European tanners have been caught short by not believing in the recent firm trend and are now being forced to cover some short-term orders that have come in, particularly for better-quality leathers. This applies in particular to the automotive tanners as some car brands have announced a moderately better outlook for the second half of the year and are talking about increases of productions after the summer break.
This means that the pipeline has to act and that the short-term replenishment demand has met empty warehouses and sold production and not only given the abattoirs the courage to sharply lift prices, but also forced and invited a number of players to ask for substantially more money. The better the quality and the heavier the hides— mainly males—the quicker the few available hides are being absorbed by a limited number of buyers.
Fortunately this has made it possible to recover at least a portion of the massive rise of prices for the summer production at the abattoir doors. For cows the price gap between European customers and Asian buyers has widened further. Although the interest for cows is no longer as intense from Chinese buyers as it was some weeks ago when prices were cheaper, it is still enough to move production. However, the quality of the buyers and the proportion of them who are real tanners is rapidly declining, which confirms that leather producers in China have become concerned about price rises in recent weeks.
So far demand is almost exclusively focused on better-quality hides. Low grades are still of no interest, and neither are lightweight calf skins. We hear that some more economic hides have seen a moderate improvement. The price gap between better- and lower-quality hides today exceeds the traditional 30% by far. Selling prices went up sharply—a reflection of the new prices at the abattoirs; more for bulls and less for cows and not fully absorbing the prices.
The kill: It continues to be very low. Some slaughterhouses have gone to three- and four-day weeks and others are slaughtering minimal numbers. This is pretty inconvenient for everyone as any operation related to the by-product cannot run easily on this level.
What we expect: For the weeks ahead the market will be stuck in the low supply and availability trap. While most European tanners are preparing to go on holiday, if they haven’t gone already, it is going to be interesting to see if the interest of Chinese tanners remains unsaturated and they continue to be willing to pay further increases if asked to. This might be a test-run to check how far the Chinese are willing to go.
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