German Perspective—15.03.11 - leatherbiz: Lea Leatherbiz

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German Perspective—15.03.11

15/03/2011
What happened this week: The situation continues to become more and more difficult. It is less a question of the general market trend, but rather more a home-made problem at the abattoirs. There is no question about the general market situation. Demand is still outstripping supply for most grades and in sympathy with the global trend, German hides should and will rise in price. However, for a few months now we are seeing jumps rather than rises and the extent at the abattoir door doesn’t reflect at all what the market can actually digest. One may argue that the market trend has always justified the prices paid in advance, but this isn’t supply chain logic and is not healthy either. Hides could possibly cost far more than they do today if the pipeline can adjust price levels according to the timeframe of the system and test what the final product really allows. While other international markets are moving incrementally up week by week, the abattoir prices in Germany are fixed in totally irregular time periods. In the market trend that we have seen for a while now it means that packers constantly feel they have missed something and processors too by not having bought what they should in view of the market. This is shaking the market up and buying prices are overtaking the market by a significant extent. We would assume this to have to be reached 10%.

So, fundamentally there is nothing wrong with the trend as such, but domestic trade is starting to drive itself into a dead end. These are rather domestic or regional issues and the general market doesn’t really care about this. As far as the business in general is concerned we are facing an explosive mixture. Certainly is demand still outstripping supply. This is the simple reason why the market is rising and tanners should blame only the global demand for consumer products and their large order books. However, what has always been a problem in the trade is the the balance and average of the raw material prices during the period covering leather contracts. In the market trend since about beginning of 2010 there has been very little chance for tanners to escape and find solutions as they have always been able to do in the past. Margins are eroding and even the full order books are less and less pleasing. Speculation in particular in China is adding to the trend. What was wise in 2010 has now become the Wild West. Strange players are entering the market and we think almost every serious supplier has odd enquiries coming in week by week that are definitely not related to any serious industrial demand.

With the general sharp rise of commodity prices, and this includes hides and skins too, these investments are becoming more and more attractive to those who are just looking for quick-money investment. However, nobody can do anything about it expect to realise that risk levels continue to rise.

Trading this week was pretty light. There were a lot of inquiries, but in the end only hand-to-mouth buying at best. What used to be a numerous container contract in the past has become a one container load deal now. Tanners still try to bid down, but in the end they realise that they have to pay the price and respond with the absolute minimum quantities possible. With the prices for males in general sky-high, a lot of tanners are trying to escape to cheaper materials and this is in many cases the female section. The number of players talking about production cuts continues to grow. This applies more to those who are not involved in the real industrial supply chains. It is also simple logic and the consequence of resistance to adequate and timely price adjustments to leather prices.

It is impressive when large shoe retailers declare that they will not raise shoe prices by any significant figures for the next season, but do not explain how the higher raw material cost will be compensated. The only possibility is that tanners are not offered an adequate price rise for their leather.

Trading this week was light and negotiations were pretty tough. What was sold was patchy volume across the offer list. Prices were squeezed higher for dairy cows and some ox and heifer types, but buyers for males tried stubbornly to defend their positions although they are the ones who need the hides more than anybody else. Most of the sales went to Asia again while European buyers were more on the sidelines. They were possibly waiting for the outcome of the abattoir buying, which didn’t help them much.

The kill: The kill was pretty low until mid-week, which was to be expected with the end of the carnival season. From Thursday onwards the numbers increased again a bit, but they are still far from normal. The percentage of males in the slaughter mix is still very low and we wonder when this is going to change. We hope that the kill is going to get back to more normal levels soon.

What we expect: With the higher prices at the abattoirs, the fight is on again. Asking prices have to be adjusted and tanners will complain again. We don’t feel comfortable because we are of the opinion that our hides are not adequately priced for most articles. No matter if hide prices are high or low, they have to fit into the total picture. It seems that some players overlook that. However, any change in the market before the APLF exhibition in Hong Kong would be a surprise. Maybe the event will bring the sobering effect that unrest and economics have so far been unable to create. Next week no changes can be expected.
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 € 2,30 Steady
  25/29,5 kg 27,5/28,5 kg 22/27 kg 25/26 kg € 2,10 Steady

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 2,10

Steady
 

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 1,80

Steady
 

30/+      kg

33,5/35,5 kg

27/+   kg

29/31 kg

€ 1,75

Steady
Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 2,25
 Steady
  30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 2,10
 Steady
  40/+      kg 45,0/48,0 kg 34/+   kg 38/40 kg € 1,90
 Steady
Thirds 15/+      kg 25,0/27,5 kg 13/+   kg 24/26 kg € 1.40
 Steady
Thirds bulls 30/+      kg 38,0/40,0 kg 24/+   kg 33/36 kg € 1.40
 Steady





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