US Perspective—02.03.10
02/03/2010
The Jacobsen Commentary and Market Opinion
Courtesy of www.thejacobsen.com
The market remains grudgingly steady in spite of pressure from buyers returning after the Chinese Lunar New Year holiday. Bids this week have been lower as tanners attempt to push back, but the favourable forward-sold positions reported by sellers has kept prices firm. Up till Thursday of last week, the Jacobsen Price Index (JPI) was $63.97, up slightly from the previous week’s $63.56.
Looking back at this time last year, it is amazing to see how low the hide market descended and then managed to scratch its way back up over the course of the year. A year ago, the JPI was at $30.12. At its bottom in April 2009, the JPI plummeted to $2—since then it has soared by more than 200%. This is remarkable when you compare it to other commodities that have rebounded significantly, but have not returned to pre-recession levels.
What made the hide market improve so dramatically is complex, with many possible explanations. At the top of the list, many pundits attribute the stellar rebound to the reduction of global hide supplies. Estimates for reductions in global kills this year are around 3% to 4%. With global kills around 250 million, this would cut availability by around 9 million hides. Although leather production throughout the world has seen dramatic improvement, many tanners are still not running at 2008 levels. The unanswered question remains: has leather production surpassed supply yet? The hide market prices would suggest this may have happened, but there are still many people in the industry who don’t see it that way.
Kills this past week are estimated to be 632,000, up 12,000 from the previous week and up 13,000 from the same period last year. The US Department of Agriculture (USDA) revised slaughter for week ending February 13 is 603,734, up slightly from estimates for that week of 602,000. The classification of slaughter comprised 48.8% steers, 32.6% heifers, 17.7% cows, and 1.4% bulls.
Due to the Lunar New Year holiday, the most recent USDA whole hide and wet blue export sales report—for week ending February 18—unsurprisingly shows both combined wet blue and hide sales, as well as shipments, down. For the week, combined sales were 430,900 and shipments were 487,400 pieces, both significantly under the week’s slaughter of 620,000. What is most interesting about the week’s numbers is that wet blue sales at 236,100 are the highest this year and exceed whole hide numbers of 194,800—also for the first time this year. The largest destination of wet blue sales was China with 136,300, followed by Italy with sales of 60,000.
For the first seven weeks of this year, wet blue sales numbers total 926,900, averaging 132,414. The most recent week’s performance was impressive; however, the previous week’s numbers were only 53,100 and the two weeks’ average of 144,600 is much closer to the year’s average sales. To put wet blue sales into perspective with production capacity, current estimates for US bluing capacity are around 190,000-to-200,000 hides per week.
Whole hide sales last week were adjusted downward by approximately 43,000 pieces. The bulk of corrections were made in China (24,443), Korea (8,607), Hong Kong (3,106), and Mexico (2,889).
Recent data have pointed to a rebounding manufacturing sector in the US with a Dow Jones report citing a 1.5% increase in demand for durable goods in January, up from a 1% increase seen in December. The increased demand for these goods has to be positive news for the hide and leather markets. Reports continue to have consumer confidence on shaky ground and it would be prudent for buyers to monitor policy closely as any sudden changes could upset the apple cart.
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