German Perspective—21.09.10

21/09/2010

What happened this week: The week was a bit awkward. On one side business was pretty quiet and tanners were not really aggressively looking for hides, but boosted by some larger isolated deals the sales numbers reached acceptable levels. In the end it doesn’t matter how the hides are sold as long as they are sold. The weak US dollar which lost more than 3% during the week did not help calculations and increased only the general price pressure in euro. Abattoir buying was like pulling teeth as packers still don’t want to understand that the market has been overshooting during the summer and the dollar, which was still supportive in the second quarter, has now reversed its influence to the negative side. Our opinion is that German hides are far too expensive at the abattoirs and the prices do not at all reflect international levels. This seems to be penetrating now with some of our colleagues and the pressure for price adjustments at the abattoirs are growing. We will see in the weeks to come if economic logic is going to win or market share policies are still going to dominate.

It is pretty hard to obtain a clear picture about the leather business at the moment. It still seems that leather demand remains pretty healthy, but one can see now in the shops how many experiments are taking place with leather substitutes. More and more products are seen that are not made from leather any more or which are combining leather with other materials. It is all a cost-saving operation to keep consumer product prices steady, since there is in the present market hardly room for any price increases.

Good news is still coming from the German automotive manufacturers. This week’s media reports have discussed not just good results, but also delivery times from a few weeks to up to several months depending on models. It’s hard to remember a time when you had to wait for your new car to be delivered. While domestic sales are still more focused on smaller, fuel-efficient vehicles the export business remains very strong in prestigious cars that traditionally consume a lot of leather. A difficult field in Europe remains the furniture business. A lot of upholstery companies are complaining about their order books and the summer has again reduced furniture sales so much that they are struggling to keep production running.

There was good news again from the accessory and luxury field. The Le Cuir À Paris exhibition last week was said to be further confirmation that leather for leathergoods is not only in good demand, but also top quality products are still facing very strong demand from emerging markets. Quality and luxury are still an unbroken attraction for many people and they are willing pay for it. It is good for the industry that leather remains a product of desire. This trend continues to be reflected by the demand for raw material. While prices for commodity cattle hides are facing stiff resistance despite good demand, top-quality veals have been able to make moderate advance in prices while still finding sufficient takers.

Financials remain a focus of discussion. There are more and more rumours about delayed payments and the credit insurers remain on high alert as well. The summer is traditionally a time of reduced turnover for many companies and it seems that quite a number of tanners are now struggling to meet their obligations on time. The separation between stronger and weaker customers continues to grow.

Trading this week was on almost steady levels, but revenues in euro were down due to the constant decline of the US dollar. Tanners continue to bid aggressively, trying to push the market lower. While the prices for dairy cows can still be defended within a narrow range, prices for lighter weight males are under pressure and to move volume one has to accept the international levels. Heavies are also under pressure, but due to strong demand from the automotive market, needs are still strong enough to defend steady or fractionally lower prices. The seasonal increase of supply is weakening suppliers’ positions at the moment and we have the impression that some are already struggling to keep the product flow intact.

The kill: The kill continues to be good and the really good news is that average weights at the moment are rising quickly. This is not only helping calculations, but is helping meet demand. We don’t think that the kill is going to rise any further, but the present levels should be maintained for a while. The prices for animal feed could become a determining factor for slaughter numbers in the coming months.

What we expect: We believe that the moderate pressure on prices will persist. The falling US dollar value is adding to the imbalance between EU hides and those from the rest of the world so our hides continue to struggle to find their level in the international structure. Abattoir prices need further adjustment next month to find an acceptable level and to build a safe level for the rest of the year. Holidays in China should slow down activity in the weeks to come and anything other than further moderate adjustments would be a surprise. Another 5% and we should be safe.

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	€ 1,50	Weakish
	30/+ kg	33,5/35,5 kg	27/+ kg	29/31 kg	€ 1,40	Weakish
Bulls	25/29,5 kg	27,5/28,5 kg	22/ 27 kg	25/26 kg	€ 1,95	Weak
	30/39,5 kg	36,0/37,0 kg	24/34 kg	31/33 kg	€ 1,85	Pressure
	40/+ kg	45,0/48,0 kg	34/+ kg	38/40 kg	€ 1,70	Pressure
Thirds	15/+ kg	25,0/27,5 kg	13/+ kg	24/26 kg	€ 1.10	Steady
Thirds bulls	30/+ kg	38,0/40,0 kg	24/+ kg	33/36 kg	€ 1.20	Pressure

German Perspective—21.09.10 - leatherbiz: Lea

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German Perspective—21.09.10