German Perspective—13.07.10
13/07/2010
Actually one could skip the reports for the moment, at least for our part of the world. Market activity is falling almost into agony and there is nothing convincing happening on the selling side at the moment. There are bits and pieces being done, but at levels that are nowhere near what is needed to justify the prices being paid at the abattoirs now. And what does the international hide in skin market actually care about the games being played in a small regional market? There is no reason to believe this could change or prevent the structural changes that are totally inevitable. Anyway under these circumstances the German market is not reacting rationally and prices at the abattoirs are not following market facts such as the weaker US dollar and the fact that the fundamental price levels in Germany are presently not competitive on the international scene. Consequently the hide business is no real fun at the moment especially when one considers that this is the time of the year when we face the lowest kill and lowest average weights of the production that is coming in.
However, there is not realistically going to be any change in the short term unless we see a major change in the direction of the global market trends. Having said this there seems to be also very little hope for anything that could change the present inflexible market conditions. Most suppliers are reasonably well sold and see no reason to change their pricing. On the other side we see many tanneries that are holding sufficient stocks and have shifted to low gear in their purchasing programmes. If they buy, then they are going for the more favourable origins like the US for prices and volumes that are far more favourable than the situation and supply position in Europe. A lot of the situation in Germany is still related to the fantastic news that is coming in from the automotive industry. Almost all luxury car makers are reporting double-digit production and sales increases, and since they are also giving excellent forecasts for the rest of 2010 all suppliers are more than confident that sales and demand for the hides that are needed for this kind of production will continue to remain at very high levels. If the global recovery continues and the boom in China in particular remains intact one cannot expect any decline in demand. This still leaves open the problem that the production of automotive leather is not profitable despite high production levels. In addition is the Chinese government has changed import regulations for cars since the beginning of July and this will also have a negative effect on exports. However, for the time being there is no cloud in the sky and this sentiment will continue to dominate the feelings of suppliers for the near future.
From what we can gather from the shoe market orders and outlook are pretty decent and with the cold winter last year most retailers are taking a very positive position versus their business for the winter. Fashion will definitely be an important factor and it will also be interesting to see what the market looks like in the end and if higher prices for leather trigger a trend to substitute the natural product with artificial materials for the next seasons. For the time being it is probably much too early to say and we still believe that any real trend can only be seen when the summer break is over. Our main concern is consequently not so much the demand for finished leather, but much more the financial problems that we expect to come sooner or later. Strong players in Asia and in Europe are certainly financially pretty sound and they should have enough financial resources to manage the great challenges of cash flow. However, for many smaller and medium-sized companies the recent increase of raw material prices has been far too quick and steep and they have unquestionably been experiencing negative cash flow constantly for some months. As long as the order position remains good turnover is rising but only a small dip could quickly break the money flow and payments can become pretty tricky. In Asia the big producers do not seem to have any problems and payments and letters of credits are still coming without delay or interruption, but the smaller players and importers.
Trading has been light and a number of bids could not be considered because they were simply too low. Most sales for the week were done for cows and only a few orders were good enough to sell some male hides too.
The kill: The extreme and very hot weather conditions are continuously weighing on the consumption of beef. The kill is very low and as long as the weather remains as hot as it is now any recovery is pretty unlikely. Consequently the supply side will not be a great danger to the market trends in the coming weeks.
What do we expect: We still believe that the market would need just a small correction to get onto a safe footing again. Demand is still there, but our hides are not competitive enough to make them a profitable product to deal with. The next weeks will be pretty much the same. Prices will not change much, quantities will be low and so the currency market might be more interesting than the hide market. Happy holidays!
| 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 | € 1,90 | Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,75 | Steady |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1,70 |
Weakish |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1,45 |
Weakish |
|
|
30/+
kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,30 |
Weakish |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2,05 |
Pressure |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,95 |
Pressure |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,70 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1.20 |
Weaker |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.20 |
Pressure |
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