German Perspective - 05.05.10 - leatherbiz: Lea Leatherbiz

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German Perspective - 05.05.10

06/05/2010
What happened this week: The market situation of last week could have been easily copied into this week’s report. While light material of high quality and heavy material of high quality are still easily finding enough buyers for anything offered, all the other grades are facing more headwinds. Every day tanners are finding that despite the negative margins, they have to cover production and incoming orders and have no choice but to run around to find somebody who can still supply the needed raw material within the timeframe given. The timeframe in general is pretty short. Sellers don’t want to go forward and to take extended positions because they are afraid of the market dynamics with the sharp rise of prices any forward position would have or could cost a lot of money. Buyers on the other side of the table are losing money with every hide they buy, and are trying to live hand-to-mouth as much as they can. This is adding to the present volatility in preferred products as well as to the sensitivity of the market.

With the extremely low kill for males, sellers feel quite comfortable in deciding week by week on decisions that had been taken traditionally month by month or even for longer periods. There is very little pressure expected from the supply side for some time. As far as the heavy bull market is concerned it seems that we might have to wait until the summer holidays. The situation with high-quality calf skins seems pretty similar as, here too, demand is outpacing supply by a number of loads a week or month. However, at least this market section does not look as stable and safely cushioned as the heavy end we described above. The two market segments cover mostly the automotive and luxury shoe and leathergoods market. They still benefit from good demand and a pipeline that has been replenished too late. Looking at the rest of the market the situation looks pretty different and possibly the last two weeks are already indicative of the possible market trend in the near future. For the more standard items such as dairy cows traditionally used in medium-quality upholstery, leather demand has been slowing down already for a number of weeks. While during the APLF exhibition in Hong Kong it seemed that the usual declining business in the second quarter of the year would be left out in 2010, the normal market pattern started to appear only a few weeks later. Demand is declining in keeping with seasonal changes and raw material prices are definitely too high for tanners to buy. Being reasonably well covered they are not forced into the market like their colleagues from automotive and so they refrain from purchasing at the present price levels.

Not everyone sees it this way and with the Chinese going now on a one-week holiday we will have to wait until their return to understand if it is just a break or possibly the traditional spring decline in upholstery leather demand. For the time being at least the only serious interest which we could see is coming from customers we would not like to sell to. In particular traders of questionable reputation are still around trying to buy material. Questions remain over whether they really have a buyer for the product, if they are simply speculating on further rising prices or if they just want to protect best positions by a few extra loads. Well informed sources from China are telling us that quite a number of hides are coming onto the market from reasonably sized wet blue stocks all over the country. If this is true, it would be very interesting to see what is going to happen if the market really takes a nose-dive in May.

Trading this week was pretty light again for us and except for some of the odd loads of heavy material there are only a few low grades in the order book. Some isolated trades for cows added to the reduced activity. Prices were firmer for males and just about steady for females again, but basically only due to the help of the weaker euro.

The kill: The kill is well below normal levels this week. In particular males are missing in the slaughter mix and there is very little indication of a change in the weeks to come.

What do we expect: for the coming week we expect again pretty low activity. What people want is not available and what is available people don’t want (at least at present price levels). With the Chinese being on holidays and Europe preparing for another round of abattoir buying, any major market activity would be a surprise.

Type Weight range Avg. green weight Salted weight Avg. weight salted Price per kg green weight Trend
Ox/heifers 15/24,5 kg 22,0/23,5 kg 13/22 kg 20/21 kg € 1,85 Steady
  25/29,5 kg 27,5/28,5 kg 22/27 kg 25/26 kg € 1,65 Steady

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 1,75

Steady
 

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 1,50

Steady
 

30/+      kg

33,5/35,5 kg

27/+   kg

29/31 kg

€ 1,35

Steady
Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 1,90 Steady
  30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 1,80 Firmer
  40/+      kg 45,0/48,0 kg 34/+   kg 38/40 kg € 1,60 Firmer
Thirds 15/+      kg 25,0/27,5 kg 13/+   kg 24/26 kg € 1.25
 Steady
Thirds bulls 30/+      kg 38,0/40,0 kg 24/+   kg 33/36 kg € 1.20
 Steady



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