German Perspective—18.05.10
18/05/2010
After Greece, Portugal and Spain have also taken action and one can only hope that everyone understands that it is not going to be a short-term action, but an operation that will take many years. Since this is a matter that is not limited to some smaller member states, but affects all of the EU and also the US and Japan. We all have to understand that tax increases or cuts of social benefits will definitely reduce consumer spending eventually, which is not good for the sales of leathergoods. Business continues to depend on the situation in emerging markets and in particular in China, where the government is also starting to fight possible asset bubbles.
The hide market has remained largely unaffected. Abattoir prices continue to rise and a number of players are still seeing more opportunities than risks, although sales are shrinking week by week.
Our market continues to be solely automotive-driven. Weekly demand still outstrips the slaughter of males and this is still encouraging continued optimism about the market in general—an opinion we don’t share. The ongoing slide of the euro supports the courage of the optimists; prices in euro have little chance of declining in the short term. While the situation in the market for males can still be justified by demand, the market for females and in particular for dairy cows is already starting to turn sour. The low season and the negative margins in upholstery production are weighing heavily on the demand and average weekly sales are declining for some time now. What was still covered by forward positions is now eroding quickly and we would not be surprised if in some offices concerns are starting to grow for the time between now and October.
In Europe and also in China spring and summer are the quiet seasons for upholstery and if raw material prices are not really inviting tanners to replenish their stocks for the following season, demand is limited to the need-to-buy positions. Despite all the stories about low stocks we have the impression that tanners are reasonably well covered for some time and can now take a wait-and-see position for several weeks. For shoe upper and automotive the situation is certainly different and tanners still enjoy a better order book and, despite the margin problems, they still have to manage their raw material needs far more closely.
Despite the fundamental problems of the EU credit crisis, current global demand for leather continues to be fair or good, and all in all it is more a margin and finance problem than a demand issue at present. The recovery of the global economy and the general stability of consumer demand has encouraged retailers to take optimistic outlooks and order budgets that are similar to those seen before the financial crisis.
In combination with the sharp gains of private consumption in China the fundamentals for leather demand remain positive, but risks are building. We deal just with expectations. So while the final consequences of the EU crisis are not known and tanners are not clear about their leather prices for the coming season, the industry will remain cautious about exposure in the raw material market. In the meantime the weak euro will continue to work as a safety net for hide prices in the EU region and cover some of the market problems up.
Trading this week was exceptionally light. Most parts of Europe were closed on Thursday, which led to a very short week. Asian buyers, in view of the weaker trend in the US and Australia, were almost absent and so activity was limited to just some patchy coincidental sales. Prices were rather steady only because of the support from the currency market. Most of the interest was for low grades and light cows.
The kill: Due to the holiday this week the total numbers are pretty much reduced. Weights are still the main concern, being fairly low.
What we expect: We can only live from week to week now. Some more weeks with buyers being on the sidelines for cows will intensify the pressure. Bulls are still being sold under programme deliveries for fresh material and will remain stable for some time due to the restricted supply. But also here tanners cannot work permanently with losses.
| 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 |
Weaker |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1,50 |
Weaker |
|
|
30/+
kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,35 |
Weaker |
|
| 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 | Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,65 | Steady |
|
| 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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