US Perspective—31.08.10
The Jacobsen Commentary and Market Opinion – 31.08.10
Courtesy of www.thejacobsen.com
Market activity and analysis
A lot of people from the industry were en route to Shanghai for the All China Leather Exhibition (ACLE) at the beginning of last week, so Monday afternoon was very quiet for the US hide market. There was very little trading reported and the sentiment from the handful of people available was that the market was steady with a few folks expressing some concern about demand in the future. Most were optimistic heading into the show.
The hide market continued to be quiet on Tuesday with a minimal amount of sales reported and prices steady to down slightly. With the ACLE fast approaching, a lot of the US hide supplier contingency was on its way to Asia or was already there visiting customers. There wasn’t much business reported from China as softer market underpinnings inspired a number of buyers to hold out for lower prices.
Offers and bids trickled in on Tuesday with offers similar to the previous week; mostly steady, and bids once again on the low side. A number of people commented that they didn’t expect there to be very much activity because of the suppliers’ travel schedules and because buyers were waiting for face-to-face meetings.
The market appeared to be in limbo on Wednesday with low bids from buyers as they held back from any major purchases in the hope that prices would drop back. There was reluctance from suppliers to follow along, causing a stalemate that seemed to be holding prices from moving much and preventing significant sales volume.
A moderate number of sales was reported on Wednesday. Prices showed some stress with the top of the range on a few selections down a dollar. A couple of sources reported that the market appears to be off a dollar but did not expect the market to move very much more. There were reports that some packer HTS and BBS were offered at $78.
By most accounts the hide trade was quiet on Thursday; however, one supplier reported that they sold a lot of hides. An increasing number of people was travelling or away for the ACLE next week. With fewer pundits stateside and a large number of people in transit or overseas, the time zone differences and travel schedules during this period impinged on communications.
A moderate number of sales was reported on Thursday with prices mixed and within the week’s trading range. Two exceptions were bull hides, with native and brands up $3 and $3.50, respectively. The Jacobsen Hide Index was down just under $0.04 for the day, showing prices fairly steady with a limited volume of steer heifer trades.
A smaller quantity of trades than normal was reported on Friday with prices edging downward. Several sources indicated there was no business on Thursday night or on Friday, while a few did a small amount. One supplier noted they passed on a bid of $78 C&F for HTS.
The round-up
All in all it was a fairly quiet week with buyers reluctant to buy until they had an opportunity to visit with suppliers face to face ahead of, or during, the leather exhibition in Shanghai. On Thursday there was feedback that pre-fair business was beginning to take place with one US trader reporting they had sold a lot of hides. Other sources noted that unless people were willing to lower prices too much, business was minimal.
For a long time, tanners have been saying hide prices are squeezing their margins and without either higher leather prices or lower hide prices they would have to cut back production. It is not clear whether this is the cause of the current market doldrums or whether there is an underlying weakness in leather markets. However, the end result is that the typical pre-ACLE hide market rally did not happen this year.
Last week there were three salient news items that could impact the hide industry in the near and long-term future. On a macro scale, the first issue is that news regarding the US economy continues to be disappointing and is weighing heavily on consumer confidence. The second issue, which is directly linked to the hide industry, was the closure of 83 tanneries for environmental non-compliance in China’s Jinjang industrial area. The burden of proof for environmental compliance is on the tanner and until they pass the requirements that meet new standards they will not be able to operate. It is not clear how long this will take and what impact it will have on leather business. And the third item this week was that a very large Korean tanner and user of US steer hides in Quingdao, China, closed its business, leaving a plethora of unresolved commitments.
Considering the large slaughter of 670,000 head last week, the week’s export sales and shipments of hides and wet blue fell slightly short but were still better than the year’s average. For the week, combined sales of blue and hides totalled 598,500 compared with the year’s average weekly numbers of 560,469. Blue and hide export shipments totalled 628,500 against a yearly weekly average of 593,870.
On a year-on-year comparison, slaughter this year is ahead of last year by 321,000, or approximately 1.5%. Meanwhile, both export sales and shipments are behind this year from the two previous years with 2.77 million fewer sales and 1.82 million fewer shipments in 2010 than the average in 2008 and 2009.
Estimated week-ending slaughter was up 11,000 from the previous week at 678,000. It’s also up 20,000 from the same period last year’s actual kills of 658,000. Tuesday’s Urner Barry poll of industry respondents’ average estimate for the week’s slaughter was 657,409.
