German Perspective - 06.04.2010
What happened this week: All eyes were directed towards APLF. Although we have had quite a number of fairs recently, the event in Hong Kong is still very important. Many people have said the event could die out soon, but every year we see the same old faces and sometimes even new ones. The organisers are claiming all the available space was booked out this year and that some interested customers even had to be turned down. In fact, the entire hall reserved for the show was completely booked out and we had the impression that none of the space was wasted.
There is always a discussion about the number of visitors, but in the end the important thing is not how many people visit, but whether they are right people. Leaving these more philosophical questions aside, we were actually impressed by the activity, which lasted well into the last day of the show. Having seen so many events before where the last day was a waste, people this year were very busy until early afternoon on the Wednesday.
As far as business was concerned, our worries about the recent and sharp price rise again proved to be premature. Chinese tanners were so successful in 2009 and have such optimistic views about business for the rest of 2010, that they swept most of their concerns about raw material price levels away and were ready takers of material at the last levels established. This worried a number of sellers once again as they saw that what they had done before was wrong. We got the impression that quite a number pulled their offers from the market claiming that they are totally sold out and have no more material to offer.
It is true there is not much stock around, but looking at the price levels reached in the meantime one would normally expect more suppliers to be ready to take some forward positions to secure the reasonable levels. However, the fear of doing wrong and missing more money was obviously bigger than the chance to protect good revenues. As a result, the market maintained its pretty strong tone and the number of warnings about market risks declined again. There were a few theoretical discussions about what could and would happen 'normally', but hardly anyone was expecting this in the near future and even the last of the pessimists gave up, having been wrong for a while now.
However, having said this, one has to remain realistic and this means that the present market strength is almost completely based on the Chinese hype. Outside China one after another buyer is starting to pull out. So far all extra materials are being absorbed by someone else (mainly in China) and some high quality niche products are in really short supply, but in general with every percentage point the market rises, more markets and tanners are making serious decisions to stay out. With the interest seen from China during APLF, nobody is concerned yet, but it might be wise to keep an eye on it.
News about a larger Korean tanner filing for bankruptcy made little impression on anyone and sellers were happy to have a few more hides to resell at a better price. Sales were able to clean up everything that was physically available with prices getting gradually higher for cows and low grades, but just stable for males. Much more resistance is being seen at the present price levels, even in China.
The kill: The kill is just about to become steady. The numbers were down because of the Easter holidays and will continue to be down this week. Weights are still lousy and one has to wonder where all the heavy cattle has gone.
What we expect: The focus of the week will be on abattoir prices. It will be very interesting to see how the domestic trade will interpret the situation. We don’t believe in much price potential anymore, although we might be forced to ask for more money. Higher prices will certainly convert to less business and we are continuing to remain on high alert. It might still take a few weeks, but finance and losses will eventually create traps.
