German Perspective—23.11.10 - leatherbiz: Lea Leatherbiz

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German Perspective—23.11.10

23/11/2010
What happened this week: Another week has finished and Christmas and the end of the year are approaching quickly. So more and more tanners in Europe are closing their books for 2010 already. Due to the high kill, strong leather orders and the falling prices in the last quarter, the year is ending on a more friendly note for the tanning industry than seemed likely over the summer. Leather prices have advanced slightly and raw material prices have come down. Order books in most cases are well filled, which has kept production levels high. Those who showed good timing in the currency market had the chance to ease any problems or to benefit from the high volatility of the currency market (others, of course, have experienced the opposite). Some tanners in Europe had to throw in the towel this year, but it was not as bad as we expected.

The week was a bit mixed. In the first half the US dollar gained in value due to the return of the problems related to the European Union debt crisis. The gain made the few bids coming from Asia attractive price-wise and so some business was booked. Apart from the standard interest in dairy cows there was also increasing interest for males, which had been too expensive for a while. The returning interest for better-quality males from China confirms the rising interest and demand in domestic China for better-quality products. One can also see more interest from shoe upper tanners for cowhides, which European tanners would not touch for this purpose. The upholstery business is still not what it should be. Again Chinese demand, more than anything else, is what is supporting the market. In Europe the demand for standard upholstery leather is still below normal and only in Asia is volume still reasonable. In Europe the situation is still dominated by the very high kill due to export business for beef. In some areas we have also had inflated kill of sheep, lamb and cattle due to the Muslim festival of Eid-ul-Adha.

For heavy males supply is not easy. Most tanning capacity is used up and a number of producers are struggling to place all hides in the same volume as slaughter. It is less a problem that the tanning industry is not willing to buy them at the correct price levels; soaking capacities are limited and nobody wants to bear the cost of salting and storing at the moment. Some don’t have the facilities, others don’t want to take the price risk of the extra cost of salting and storing into 2011 not being compensated by the market.

The hides that are in abundant supply at the moment are simply too heavy and too expensive to attract any overseas interest and so they either have to be dumped, squeezed into whatever tanning operation possible or held in salted until the kill slows down and they can be filtered back into the system.

There is still no problem with demand. The automotive industry is still sitting on large order books and they paint a rosy picture in their forecasts for the year 2011. The problem of price and how long tanners can and will resist against the aggressive attempts of packers to push prices higher remains. Some have or will develop a buffer as a result of the good supply situation in the recent weeks. Since this is pretty likely to continue into December the European automobile tanners are ending 2010 with a decent buffer of semi-finished stock, which should give them pretty good protection into early 2011. We think therefore that the prices for extra heavy hides have little short-term potential to rise. The situation for hides of up to 40 kilos is a bit different as shoe tanners come into play as competitors for raw material. The moderate rise in prices in the US and the firmer US dollar have made possible the sale of males in the weight categories between 25–40 kilos. When the timing was right the goods were quickly and readily snapped up by interested buyers in Asia. They learned in 2009 about the potential and quality of these hides and always have them on the monitor now. Cows will depend more on the appetite of the Chinese consumer.

In Europe it doesn’t seem that upholstery demand in the medium-lower end will increase much this season. In the shops lot of what used to be corrected grain and semi-aniline is now artificial material, and neither design nor production will change much in the months ahead. If price is an issue in automotive and footwear, it is in even more so in upholstery. Trading this week was moderate. The rising US dollar made a number of bids suddenly workable at the beginning of the week. Again, it was the Asian business that was dominant and in Europe only a handful of renewable programmes were completed. Prices were steady with easier negotiations for lighter material to Asian markets and difficult discussions in Europe the heavier the weights got. All in all, however, prices this week were steady and sales were satisfactory. Later in the week a number of orders had to be turned down because buyers were not willing to compensate for the decline in the currency exchanges.

The kill: The kill remains high. Export sales of beef are still supportive and the Christmas effect will slowly come into play. The number was inflated by the Muslim Eid-ul-Adha festival, which supports the slaughter of sheep and lamb. Slaughter numbers for cattle have also been affected by the festival. Consequently, supply is totally adequate.

What we expect: The market seems to be limited on both sides and there is relative balance between supply and demand. Tanners in most cases bow out when suppliers ask for more and suppliers mostly bow out when they receive ‘ambitious’ bids from tanners. Except for a few bits and pieces, there are not really any serious stocks burdening suppliers and so it is a bit of a see-saw situation. One week the buyers are up and the next the sellers are up, without any real progress in prices, because one can always wait until the other swings back. So far, there is no real indication that this situation is going to change. However, the market is sensitive as neither side can hold out for too long at the moment. If there is an advantage on either side we would see it on the sellers’ rather than the buyers’ side. It seems that only in the event of a serious general economic incident would the demand for leather slow down.
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 € 1,85 Steady
  25/29,5 kg 27,5/28,5 kg 22/27 kg 25/26 kg € 1,65 Steady

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 1,65

Steady
 

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 1,45

Steady
 

30/+      kg

33,5/35,5 kg

27/+   kg

29/31 kg

€ 1,30

Steady
Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 1,80
 Steady
  30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 1,60
 Steady
  40/+      kg 45,0/48,0 kg 34/+   kg 38/40 kg € 1,40
 Steady
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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