German Perspective—20.10.09
What happened this week: The focus of the week was on Bologna leather fair Lineapelle, which gave the trade another chance to meet in an attempt to gather more information about the present state of the leather industry and demand for the product. The meeting was overshadowed by the latest news from the VAT scandal in Italy which saw a large number of enterprises under investigation by special forces and more than 20 people remanded in custody.
Although it is pretty good news that this fraud is finally being taken seriously by the Italian justice system and one hopes the organised system that has been in place for years might see an end, it could seriously damage the industry in the area. Most players still hope it will be sorted out 'the Italian way', through 'private' solutions, but the outsider view is that it cannot be solved so easily. Since it was a pretty widespread practise in the area it is unlikely that a mere handful will be willing to take the penalties. A domino effect is to be expected, with betrayals given and more details divulged by those already in custody.
In the meantime, tanners from the Veneto region are trying to return to their daily routines and to appear relaxed. However, the side effect on banks and credit insurers should not be underestimated. As far as business and market information was concerned the fair delivered both good and bad news. The positives are that good-quality leather remains in good demand. Quality and beauty is still attracting enough consumer interest to keep business for the high-end specialists intact. They are also still benefitting from the relatively reasonable price levels for raw materials. In particular, leathers for shoes, bags and accessories are performing better.
We are also seeing a trend for better and more natural articles in upholstery. However, although many call the business stable or even better, you hardly find anyone who calls it better than 80% of full production. Some of the usual seasonal increases in activity and leather orders were noted, although we don’t think that this is the great recovery everybody is waiting for. The weak US$ and the trend to better-quality materials is on one side good for the quality tanners in Europe as they find more market potential, but is bad for the volume and commodity tanners, who are losing their grasp on the market and are under pressure not only because of reduced demand but also because of cost structure.
Sales during the week were satisfactory. The sharp correction for cow prices has stabilised a decent amount of demand and the new prices at the abattoirs have allowed some price corrections, which has stimulated demand. Prices have started to get back to levels where they were competitive. Another correction in November and we would be back to what could be described as a normal market, price and margin level after the absolute chaos and disaster of the summer months.
The round of activity came from all directions. China started the week and in Bologna the EU tanners joined the party. It looked like a round of security buying and replenishment in an attempt to secure some raw material at present levels to protect against potential new surprises in the raw material market. Particularly good interest was seen for heavy, good-quality bull hides. Prices saw a settlement on the levels that had already been indicated in previous weeks.
Tanners with sufficient stocks are still holding a bit back in the hope that prices will decline a bit further with the higher kill and the weak US$. Others seem to have done what they needed to do for the short term. The US$ has fallen this week to almost 1.50 with a moderate recovery on Friday, but it remains one of the influential factors on market trends.
The kill: There is not much news in terms of kill. The beef business is poor and this is keeping slaughter pretty much under control. Temperatures have dropped quite a bit in the last week and this should trigger some more movement in consumption as well as in slaughter now. So, in the coming weeks numbers are expected to increase, particularly for cows and heifers. What we are really missing so far are rising average weights which are still pretty low for this time of the year and haven’t seen much of a recovery after the summer.
What we expect: With the increase in demand and activity we have seen this week the market seems to have found a floor for the moment. Some isolated materials such as extra-light and extra-heavy, good-quality hides are seeing good demand and this is preventing any further price pressure. Cows, however, will need more support to absorb the supplies in the weeks to come. All in all one can expect stability now.
