German Perspective—11.01.11
11/01/2011
So, all activity we saw during this past week was from Asia, mainly from China. Tanners have been buying hand to mouth with hardly anyone willing to take and larger position with greater commitment. What had been a monthly buying in good chunks has become now a weekly buying of small packages. We have to admit that we are not unhappy with this since it is not only limiting the risk of the buyer, but of the seller too. With the order-books of the leather industry being reasonably full and the kill expected to be lower, the market trend is set for moderate rises, possibly supported by the currency situation too. This is only one side of the coin and we have mentioned our concerns a number of times already. If prices move higher we are going to have the same problems we had last summer. Exceeding a certain level means a serious threat to the situation of many tanneries and might end in problems short term with more tanneries shutting down and, longer term, further substitution of leather, at least in the middle and lower quality end. Having said this we know also that hide suppliers often like to complain about the consequences of difficulties rather than try to prevent them from occurring.
Nobody can wipe away the fact that the fundamentals are positive and the inventory situation all over is not too bright. Consequently the balance between supply and demand is pretty stable. Lower kills and higher asking prices are answered by reduced purchasing and less demand. Since this situation keeps stocks low, prices are on a steady-to-firmer footing with suppliers not seeing any reason to consider lower bids. They are finding victims here and there who need to accept what is asked and so the market is notching incrementally up. We will only see the real market situation when everybody is back at work and has to declare what their real needs are.
In our case we think that the main factor will possibly be the currency market once again. Fighting for cents on the price on one side is frequently overtaken quickly by movement in the currency market. The end-of-the-year weakness of the US dollar is over and we have returned to test the $1.30 (to the euro) levels. If the weakness of the euro persists and we see exchange levels in the $1.20s again, we would certainly see a reflection in euro prices too. Since the first quarter is traditionally one of the strong ones, our market is certainly more set for the upside than for the downside. This is how the market looks to us today. On the other side of the equation we have to deal with the problems of the tanning industry. Leather prices are not moving enough. The cost of production is set to rise in 2011, with higher prices for chemicals and energy. If eventually interest rates rise also and possibly a bit more than the market expects today, we could be back to what we have already seen, and cash-flow will become an issue for the tanners again sooner rather than later. If banks are needed to finance higher cash-flow needs, they will be pretty intense in their opinions on what the money should be used for. This applies not only to Europe but to China too, where a lot of credit has been redirected into the leather industry and raw material. This needs to be repaid one day.
Trading during the week was pretty light. All interest came from Asia and after long negotiations we were able to sell a few loads at asking prices. This was mainly for dairy cows. The male market was reasonably quiet with most January productions being sold already anyway. Automotive tanners have to think carefully about their purchasing strategy in the weeks to come since good news about the automotive industry is spreading in the media. Their decisions will be decisive for the trend in the weeks to come. Their requirements and the US dollar trend will certainly set the pace for the coming weeks.
The kill: The kill was far less than we expected. A number of slaughterhouses did not operate at normal levels in the first week of the year. There have been no complaints about the price and availability of cattle from the export beef business or packer sectors. The weather has normalised and transportation problems are not hindering anymore. The next week it might get a bit better, but there is no real sign of a sharp improvement in slaughter numbers.
What we expect: Short-term, the market will have a firmer basis. Packers will not be shy to ask for more money for their hides and under the present market conditions it will be tough to resist. Let’s assume the rises remain moderate as any sharp jump would have a serious long-term effect on margins in the trade.
| 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 | Firmish |
|
|
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 |
€ 1,55 |
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 | € 1,70 |
Firmish |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,45 |
Firmish |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1.25 |
Firmish |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.20 |
Steady |
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