German Perspective—28.09.10 - leatherbiz: Lea Leatherbiz

Intelligence

German Perspective—28.09.10

28/09/2010
What happened this week: It has been a week of contrasts. While on one side a minority of players tried to beef the market up launching positive statements, sales activity was pretty slow. In some publications this week sellers were quoted to be positive on prices and sales for European hides in the near future. At the same time sales at lower prices of cows into Italy started to circulate and a number of tanners were reporting that suppliers were desperately trying to get rid of excessive volumes of fresh male hides. Adding to the situation most of Asia was on a short vacation from Wednesday and so little activity was seen from that direction too. The US dollar fell roughly another 2% and has lost around six cents against the euro over the past two weeks, which converts roughly into a reduction of a couple of euros per piece, assuming that US dollar prices haven’t gone up. So, it was a bit difficult for us to share the optimism. There is no question that side leather and automotive tanners are running a full order book, but the problem is that German hides are still not in line with international levels. This remains unresolved and it is not being pushed through the pipeline.

There is a general consensus in the global tanning industry that a moderate correction of raw material prices would solve the problem of margins. With no inflation in sight, alternative materials at lower prices are in abundant supply and there is no hope for higher leather prices for the next season. There is only one exit strategy and that is to adapt raw material prices. Short term it could protect the leather business for this and the next season. If not the threat of more substitution of leather in the seasons to come has to be expected, which would certainly not be any good for the outlook of the tanneries.

Despite the huge amounts of liquidity still injected into the system it doesn’t seem to stimulate consumer demand enough to allow retailers to raise prices. The money is stimulating prices for investment assets like real estate or commodities here and there, but manufacturing capacity is still rising faster than consumer demand and this?in combination with the purchasing power of retailers?is still holding consumer product prices down. Along the production chain this is leaving massive margin problems as a result of the recovery of raw material prices to ‘pre-Lehman’ levels. The optimists see the failure of an automotive and upholstery tanner last week only as an isolated incident, but more realistically one has to see it more as the tip of an iceberg that nobody knows the true size of yet. We believe that margins and financial resources have been melting since late spring and it could become pretty nasty eventually. As long as the drums are still rolling and turnover and revenues are not interrupted, it can still be covered up, but any small disruption?in particular in the upholstery business?could quickly turn into problems. One should remember, that it would not be the first time that a trade turned sour even with full order books full. Not to be misunderstood. The worries we have are mainly related to the continental European market, which we consider to be out of the global price range. As far as tanners are concerned we believe the highest threats are for European upholstery tanners.

Since the EU market for upholstery and upholstery leather remains pretty flat, overseas exports are increasingly important, but here the weaker US dollar is an additional burden from a sales perspective. Due to the general situation and the holidays in China, sales this week were pretty quiet. Some isolated deals were booked, but in the end traders are in a similar situation to the tanners. Volumes are not really the issue. Every hide still sells, like most square-feet of the leather our clients make, but not at the prices needed. Neither we nor our clients are non-profit or governmental welfare institutions, and our motivation is not to support the testosterone-related games of players who still have old-fashioned business attitudes. The good thing is that this time the market is going to sort it out, albeit a little later rather than sooner, as should be the case. Prices for the week went lower as the US dollar declined.

The kill: The kill continues to be steady on the higher levels. Export beef business is pretty good and this is supporting the slaughter numbers at present. Although slaughter number will fluctuate, we believe that the general level of slaughter will remain within the range we have established in the past weeks.

What we expect: Cow prices saw their first price concessions last week in Italy where prices of the standard grade dropped by 3%–5% compared to a month ago. We have heard about a decent amount of fresh males trying to find homes. The kill is high enough now to satisfy the magic number of drums which have to be filled with fresh, chilled hides every day. Any surplus will be hard to place at the prices asked. There are a lot of rumours about confidential offers for the extra heavy standard males being made at prices that are a good 10% below the levels of the beginning of the month, provided tanners are willing to take them fresh and quick. Where there is smoke, there is fire and we tend to believe that the trend is set. Now a lot will depend on the reaction of other important EU supply origins when it comes to the showdown in the coming weeks leading up to the Lineapelle exhibition in Bologna. A reduction of between 5% and 10 % in selling prices and between 10% and 20% in abattoir prices would sort everything out and would be a fair market reflection. Our market is however, presently more politically than economically driven and so rational projections are difficult.
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 € 1,85
 Weak
  30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 1,80
 Pressure
  40/+      kg 45,0/48,0 kg 34/+   kg 38/40 kg € 1,65
 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




Leatherbiz.com cannot be held responsible for content if the language setting is changed from English.

The translations provided by Google Translate are automated and therefore might not be accurate and may contain incorrect, offensive or misleading language. We offer this facility as a guide only.