German Perspective—19.10.10 - leatherbiz: Lea Leatherbiz

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German Perspective—19.10.10

19/10/2010
What happened this week: With great interest and expectation the trade went to Bologna last week for the Lineapelle exhibition. These events can trigger important moves and sometimes change the entire market sentiment. With the recent market turmoil and price corrections in Europe many of the European players went to visit the show with a reasonable level of uncertainty about the ability of the market to enter into a deeper correction move. Well, to draw the conclusions first: although the sellers had to accept during the show that the recent market correction was inevitable, they also had the relief that a market slump is not round the corner. The fair in Bologna proved once again, that leather demand is robust and only the strong resistance against higher leather prices is capping raw material prices. The show did actually not show many new trends. Colours were intensified and more brilliant, some finishes were more modified and shiny, but fundamentally quality and nature were still the dominating trends seen. The show confirmed also the strong performance of luxury brands and products. Tanners who are supplying these clients are performing best and there has been hardly anyone in this group reporting anything other than full order books and a very positive outlook. While all these tanners were quite happy there were also some who couldn’t join the party because they have no links to any of the successful brands and despite having nice and competitive products they are finding the situation far less promising. The activity on their stands was quiet and many couldn’t understand why they were not being discovered by the purchasing teams, being as good and even more competitive in price. Well, it is the lesson and situation we have seen more and more in the recent years: either you are part of the successful supply chain or you are not. Being part means you are just riding on the general waves of demand and business. Not being part of it it becomes an extremely hard struggle to find enough customers to fill production on a regular basis. With more and more brands either integrating production or qualifying selected producers to be key suppliers, it is becoming increasingly difficult for the others to stay on track and only financial failures or quality irregularities on the part of one of the existing suppliers can offer the chance to join the club. This is mainly the situation in the shoe and leathergoods sector at the high-quality end. Although Bologna is not a show for upholstery leather those tanners exhibiting were also confirming more interest for leather and an improved intake of leather orders in the previous weeks after a pretty dull month of September. This is good news as far as the volumes are concerned, but the upholstery tanners are still suffering more from the price situation. The top end is again not so much affected, but the bulk of the orders came in for the medium and low end, which is traditionally much more price-sensitive.

There was also more interest and products seen for the garment sector and high street brands seem to have the courage to experiment with leather garments again. This is reflected in the shortage of lamb and sheepskins, but also in more articles made from calf and other bovine origins. As much as tanners were interested to see their clients and to sell leather, they were also willing to receive their suppliers and to discuss the raw material situation. The price problem and the outlook of the raw material market is more essential than ever at the moment. The sharp correction and adjustment in the EU market in the past weeks has given tanners hope for more reductions and the chance to return or increase their margins. That was their main aim: to explain and to verify their inability to work with higher raw material prices in the season to come.

The currency situation is working in their favour at the moment and the weakness of the US dollar is keeping prices in Europe under control. Upholstery and automotive tanners are keeping their guns loaded and they are still working on further declines. At the light and quality end, the market is facing less headwind, but at the heavy end the tanners are more optimistic about working the market further their way. The higher seasonal kill may support their attempts, but we don’t think that their ambitious ideas of another 10% drop will be (fully) successful.

This was also reflected in the volume of business during the show. Both sides were not really willing to give in. Sellers were not yet ready to surrender and buyers were not actually in need of booking at the present asking levels and so we left with the impression that a lot of discussions were left open for the weeks to come. For the light and high quality end it seemed that demand and supply found their compromises. Consequently not much has really changed. Demand is good and the fear of deeper problems in the leather business have been wiped away, but a fair balance between the price of raw material and the price of leather has still to be found.

The kill: The kill is still not back to the higher levels we saw at the end of September. There are rumours about decent export interest for beef, but it doesn’t seem that any big deals are done yet. Domestic demand for beef is also not as good as it should be and so the kill is lagging behind what one would expect for the time of the year. Weights are not yet at the levels one could expect for October.

What we expect: Some of the pressure has been lifted, but a lot will now depend on the success of attempts to bring abattoir prices into line with market realities. If this is going to be successful, we think that a safe level until the end of the year might be within a 5% range of today’s selling prices. If the relative prices can now be achieved at the abattoir doors, we think that the market will be on safe ground for a while of there are no further surprises from the currency market.
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 € 1,70 Weaker

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 1,65

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 € 1,80
 Pressure
  30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 1,70
 Pressure
  40/+      kg 45,0/48,0 kg 34/+   kg 38/40 kg € 1,50
 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 € 1.15
 Steady



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