German Perspective—30.11.10 - leatherbiz: Lea Leatherbiz

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German Perspective—30.11.10

30/11/2010
What happened this week: The week was dominated by the weak euro as a result of the return of the European Union debt crisis. It is actually really surprising how little turbulence has hit the markets in general. Except for the banks and enterprises that are directly involved, stock markets are holding up well and the world outside the victim countries seems not to be taking too much notice. Most countries don’t appear to consider that the situation could be a serious threat to their individual situation. Let’s just hope that Europe is not the Titanic with the band playing until the ship finally sinks. At the moment it is only small countries with relatively few consumers who have been hit, but it will be a surprise if the situation does not leave more and deeper footprints in the global economy.

For the time being at least global consumer performance remains brisk; there is hardly any sector not reporting excellent sales, full order books and positive company outlooks. The German premium car industry is making a lot of money selling cars and is back to the good old days where you had to wait for your car to be delivered. Luxury brand names around the globe can also hardly meet demand and the main concern is how to get production to deliver rather than to sell what has been produced. So it remains increasingly surprising that leather prices are still not moving or only stubbornly and incrementally up. Why, if everything is red hot and retail is so brilliant? Well, we have no striking answer. The most logical explanation for us is still that what is available at retail now is the production of the first half of the year. Today’s orders are the result of sales, and the expectations and budgets for the future are based on these figures. If everything runs according to the budgets it will be fine, if not it is going to be difficult to match the sales forecasts. At the same time the budgets are based on no or very low inflation. This means that higher prices in retail are not being considered.

With transportation, energy, labour already going up, there is very little left to be invested into the main material, leather. Discussions for sales people so difficult. Some would rather downgrade quality or substitute the main material than pay more. It seems we are now approaching the junction where the serious decisions have to be taken. Under the present conditions and with the positive outlook the industry is taking there is at least a better chance than ever before in the past two years that this could be successful. However, this is on condition that nothing negative in the general economy happens, which is far from certain. If the crisis is not managed we will lose customers and purchasing power, which might still be compensated in other parts of the world, but even that is going to change the pattern of the market. Substituting one consumer in one market by another in another market doesn’t create a one-for-one situation. One way or the other we are certainly entering into a pretty challenging time for later in 2011. For the time being the world is still in order and higher US dollar is supporting the EU market finally.

Market activity was pretty dull this week. At least some buyers, related to shoe leather mainly, were still interested and so at least a bit of business could be booked. The interest is mainly for low- or high-grade material; in the middle there is still not too much action. We see more and more cowhides being requested by the shoe tanners, which is certainly a price issue. At the levels the tanners can afford today, they can hardly get the hides they would prefer. So, they try to escape again into products of second choice which look attractive when somebody is not too concerned about the final outcome in the finished product. In this regard it has also to be mentioned, that it is mainly shoe production related operators who are willing to take the risk and not so much the individual tanner. Anyway, it generated enough sales to pass another week with reasonable figures.

The interest came again mostly from Asia with margins returning to normal levels. Long may it last. However, the total trading activity was not really large and the European tanners were again pretty quiet. Overseas the reduced activity might be also related to the Thanksgiving holiday in the US, which can also influence the rhythm in Asia. It could also be that things in general are already in slow gear as we approach the end of the year.

The rise of split revenues is making even heavier European hides more attractive again as a result of the split credit. What generates a decent split was easier to sell than other types of material. US dollar prices remained more or less steady, which offered a gain of approximately 1.5 % on currency. As already mentioned, European tanners are not really active at the moment and are trying everything to hold prices down after fighting hard to get them down.

The kill: The kill remains steady at higher seasonal levels. The export business for beef continues and packers are expecting this to last into early 2011. Live cattle prices are increasing and the question is whether there will be enough animals ready for slaughter over this period. Weights are still not impressive. In about a week, killing for the Christmas season will begin, so slaughter numbers should stay high.

What we expect: With the stronger US dollar the market is now definitely on safer ground. The general sentiment is that, despite the high kill and the Christmas season ahead, the correction phase in Europe is over and the market is settled. Those who believe that slaughter numbers will decline and there will be steady demand in the first quarter of 2011 are now taking their chances to build some stock from the excessive volumes that are still around. Others are keeping their books clear in the interest of the end of the fiscal year. It seems to us that for the short term the market will remain balanced, with sellers being less concerned than some weeks ago and unwilling to let the market slide any further. Prices should change little according to currency fluctuations. Sellers will prefer to take advantage of the upside rather than concentrating on the downside.

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 Steady

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 1,70

Steady
 

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 1,50

Steady
 

30/+      kg

33,5/35,5 kg

27/+   kg

29/31 kg

€ 1,35

Steady
Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 1,85
 Steady
  30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 1,65
 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 € 1.20
 Steady
Thirds bulls 30/+      kg 38,0/40,0 kg 24/+   kg 33/36 kg € 1.20
 Steady




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