German Perspective—31.05.11

31/05/2011

What happened this week: We don’t believe the confusion in the market has gone. A lot of parameters are delivering conflicting information. Most of the prices of officially quoted as still pretty steady and even moderately higher for some origins. But one hears about desperate sellers offering pretty reasonable volumes at pretty decent discounts to what is called ‘the market’ today. It’s true, however, that most of these rumours are arising from sources that do not have a good reputation. So many tanners believe that these offers are for stocks that are the result of poor deliveries from before, and they might be right with the consequence that customers are no longer willing to buy in a market that has been sliding over the past weeks. From what we have seen during the week we tend to agree.

Whatever the reason, many people believe that the market is weaker and lower than most sellers would be willing to accept today. That doesn’t make discussions any easier at the moment. Buyers still need lower raw material prices and feel supported in their opinions by the odd offers circulating the market. This situation made trading last week not at all easy because there was a wide gap between initial bids and what we considered to be a reasonable price level for hides at the moment. Consequently it took days until the situation was sorted out and agreements were found for business to be concluded.

In the end prices were significantly closer to our ideas than to the pretty ambitious bids tanners were placing at the beginning of the week. To dampen any optimism stemming from this, the prices were still lower than those of previous weeks. So the market continues to be in a very moderate slide, but in our view with no indication of any serious danger of massive correction. Buyers are presently selecting their supplies very carefully and anyone who performed reasonably well during the times when prices were constantly rising seems now to be able to get a fair reward and to sell in the volumes desired.

We see a lot of Asian agents travelling in Europe, and they might not only be attracted by the nice spring weather. It seems that a number of them have to settle claims and are trying also to attract more reliable sources to work with them. This explains the wide range of market opinions one can find at present in the trade. Those who have been constantly moving their product and don’t see stocks in their warehouse before the upcoming summer season have a more comfortable view of things than the ones who have stocks and see further hides coming without much interest around from buyers.

From the leather business there is a mixed bag of news and reports. Upholstery is seeing its traditional seasonal decline. Many are saying that since mid-April the order intake has been very slow and they are just working down their order books, which had filled up in the first quarter of the year. Also the Interzum Fair in Cologne did not change sentiments much. This summer will be as quiet as many before for the upholstery business. Shoe and automotive still enjoy better orders, but tanners find it easier to secure supply these days and are not worrying too much about the raw material side. Many of them seem to have sufficient coverage until their summer holidays or at least enough that they don’t need to worry about the few hides they might still require.

Our regular buyers haven’t let us down and the number of sales and volume wasn’t at all bad. We don’t think we have been too soft in our positions and that abattoir prices may still be too high. We think we got fair levels in view of the international market levels. Interest this week has been a bit less for dairy cows, but a bit better again for bulls and ox/heifers. The US dollar didn’t go through the $1.40 to the euro mark, so currency neither helped nor hindered.

The kill: Slaughter numbers are low. The weather is favourable, prices for milk are reasonable and beef demand is nothing special. Live cattle prices are high and all this is not really a good base for a larger kill. Next week will be short with a holiday on Thursday for Ascension Day and so supply will remain restricted. Cattle and hide weights are now reducing fast to their annual lows in June and July.

What we expect: What can really move the market at the moment? We have no idea. Supply levels will protect the market from any significant downward correction and the upcoming holidays will keep demand under control, so the chance of any serious price hike is limited. It seems that there are more around who need to sell (for whatever reason) than those who need to buy. Money and cash-flow might be the market-makers rather than the balance between supply and demand. So, if we were to vote for a move in any direction we still think that a small downward adjustment is more likely than any upward move. However, a lot will also depend on the next round of abattoir buying and the prices.

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	€ 2,20	Steady
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 1.95	Steady
Dairy cows	15/24,5 kg	22,5/23,5 kg	13/22 kg	20/21 kg	€ 1.95	Steady
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 1.75	Steady
	30/+ kg	33,5/35,5 kg	27/+ kg	29/31 kg	€ 1.60	Steady
Bulls	25/29,5 kg	27,5/28,5 kg	22/ 27 kg	25/26 kg	€ 2.20	Pressure
	30/39,5 kg	36,0/37,0 kg	24/34 kg	31/33 kg	€ 1,95	Pressure
	40/+ kg	45,0/48,0 kg	34/+ kg	38/40 kg	€ 1.75	Steady
Thirds	15/+ kg	25,0/27,5 kg	13/+ kg	24/26 kg	€ 1.35	Steady
Thirds bulls	30/+ kg	38,0/40,0 kg	24/+ kg	33/36 kg	€ 1.35	Steady

German Perspective—31.05.11 - leatherbiz: Lea

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German Perspective—31.05.11