US Perspective—20.10.09
Courtesy of www.thejacobsen.com
Market activity and analysis
The market was extremely quiet on Monday with only one trade reported. A modest number of trades was reported at mixed prices on Tuesday. HNS spread ranged from $49 for processor hides to $53.50 for packer hides. HTS ranged from the same low of $49 for processor to $51 for packer hides. Both HNH and HBH were up slightly at $40 and $36.75 respectively.
In the market on Wednesday there was a flurry of trades with prices on steers pushing upward to new highs. Of particular interest were BBS and BS sold as high as $54 and $53—both higher than HNS and lightweight HTS.
A fairly large amount of trades was reported on Thursday. Prices were mixed with several selections down slightly from Wednesday. One supplier noted that they were holding back their offers to bring in their position. Overall, the market appeared to be steady. The market was very quiet on Friday with a minimal number of trades reported. Prices were within the week’s trading range.
Sales figures announced
Retail sales for September were in and, as expected, auto sales following the August “cash for clunkers” took a major hit with parts and auto retail sales dropping 10.4%. This dragged overall retail down 1.5%. But the good news is, excluding autos, retail grew 0.5% for the month, beating analysts’ expectations.
On the global platform, China’s retail auto sales are outperforming the US with September sales totalling 1.33 million. According to the China Association of Automobile Manufactures, sales have exceeded 1.1 million for the past seven months. From January through September, China auto sales were 9.66 million compared to the US with 7.8 million vehicles.
With the decline in auto leather demand, a major driver in last fall’s collapse of the hide market, the recent turnaround in auto sales and leather demand—prodded by the domestic Chinese market—has likely been a major factor in the increases of hide prices seen over the past several months. No doubt, increased summer sales in the US spurred by “cash for clunkers” also played an important role. However, with the Chinese domestic auto market surpassing the US, the impact on hide demand was likely the greater factor and will play a key part in future hide sales.
What is not known precisely in this equation is the percentage of leather in China’s marketplace derived from autos. According to sources, estimates are that approximately 2.4 million hides will be consumed in domestic production of eight million autos in 2009. In the first three-quarters of the year, the domestic production’s share of the 9.66 million autos sold is around six million with 1.8 million hides consumed. Imports making up the remaining sales are likely to have a large percentage using leather.
Falling sales and shipments
Released a day later than usual, the USDA export report showed both sales and shipments of whole hides and wet blue behind the week of October 10 slaughter of 634,000 by 110,700 and 105,000 respectively. This was in line with what shippers were expecting considering the unusual nature of the prior week with both the Chinese holiday and the USHSLA Annual Convention in play.
Net hide sales were not greatly impacted by cancellations or corrections with gross sales of 423,551 about 5% above net sales. Taiwan (8,423), Japan (6,323) and India (4,000) accounted for 88% of the adjustments.
Through week ending October 10, this year’s exports of blue and whole hides are 26,176,400 comparing favourably to slaughter by 370,000. Sales, on the other hand, have fallen behind and are trailing slaughter by 892,000 pieces year-to-date. This is a clear indication that suppliers have reigned in their forward sales position and are keeping new sales closer. After last winter’s order cancellations and subsequent necessity to resell or renegotiate expensive hides when the market fell, no one is anxious to stick their neck out too far.
On a macro basis, these statistics support the argument that the problem with shipments as reported from Asia this past summer was caused by a lack of raw material. With shipments exceeding both sales and kills, when you take into account the US domestic production, there doesn’t appear to be much more material available that could have been shipped.
Successful meeting
Congratulations to the United States Hide Skin and Leather Association (USHSLA) for the successful 30th Annual Meeting held in Chicago on October 8-9. The meeting was well attended and provided a succinct review of the association’s work over the past year as well as insight into its future direction. Among many interesting topics covered during Friday’s meetings, Chris Mullally, 2008-2009 chairman of the board of USHSLA, reviewed the state of the association and was particularly pleased that membership has grown and several old members have returned.
On the subject of International Contract #6, Chris reported that USHSLA opposed proposed changes by the Chinese Leather Industry Association. It was further noted that the board of the International Council of Hide, Skin, and Leather Association (ICHSLTA) also was in opposition and that USHSLA has renewed its membership in ICHSLTA in order to have a voice in matters such as this. The issue will be addressed by ICHSLTA’s full membership at its annual general meeting in March 2010. USHSLA expects to have representation at the meeting.
USHSLA has taken an aggressive approach toward promoting US raw material, which so far this year has included overseas trade missions and presentations to more than 400 people at international trade shows in: Ho Chi Minh City, Vietnam; New Delhi, Kanpur and Calcutta in India; Shanghai, China; and Bangkok, Thailand.
David Peters of DPL advisors presented an abbreviated version of ‘Benefits of Using US Hides’ at the meeting. This presentation provides very convincing insight on the value of the US hide supply in comparison to the rest of the world. The association’s president, John Reddington, moderated a review of activities in Thailand, Vietnam, and India with panellists Jay Jansen, Southwest Hide Company; Mike Larson, Tyson Foods; and David Peters, DLP Advisors. Each has attended trade missions in one or more of the countries mentioned above.
The international market
UK
This week has followed a similar pattern to previous weeks with a quietish first part of the week followed by the bids and bookings toward the end of the week. It would appear that demand for European hides remains strong with the most interest still being shown for the heavier weights. The kill remains fairly low and most suppliers are sold forward. We do not expect to see too much change in the near future unless the numbers of hides available were to dramatically increase.
Australia
The Australian dollar is now above $0.915, making the terms of international trade more difficult. Prices in general are stable. With the continuing strengthening of the AU$ some pundits think they may see some reductions paid to meatworks in the coming weeks.
On the supply side, kills continue lower than historical averages as good rains have made farmers hold on to their cattle longer. The poor exchange rate is exacerbating this.
Italy remains quiet as suppliers wait for news from Bologna. Meanwhile, Asia remains busy with suppliers attempting to increase prices a dollar or two. One source maintains Chinese tanners are bidding higher and seem to have abandoned their efforts over the past month to pull the market back.
China
Most Chinese tanners have been quiet during the early part of October with the domestic market very uncertain as the high season for upper shoe business is soon coming to an end. In the export market, business is better than last month with sources indicating that orders are matching or slightly exceeding projections. This makes the tanners’ supply chain manageable since their raw material purchases are based on the brand’s forecast. Export shoe business is still not where it was before the recession with some tanners estimating business being off over 15%.
Although there continues to be demand, buyers’ ideas of prices in some cases is too low for suppliers to consider. A few have begun to give serious bids and some small volume business was concluded below $60 C&F US$ for HTX/HNS.
Environmental problems continue in the Fujian province in Southern China. The scope of the problem is still developing as government officials conduct investigations. In the meantime, tanners are running at reduced production levels and trying to reduce their wastewater emissions to avoid making or being cited for any pollution violations.
For the tanners in the Fujian region, the uncertainty has diminished their interest in buying hides for November and December shipments. There are unconfirmed stories that some hides from this area are on the market for sale.
