German Perspective—26.07.11

26/07/2011

What happened this week: The summer has arrived and now the last European tanneries are preparing to shut down for their summer vacations. By the end of next week hardly anyone will be available for at least two weeks and it doesn‘t seem this year that buyers are too concerned about the raw material market and will not be on their mobile phones and computers to check if there is a bargain around. At least in Europe it seems that most players have covered what they need and it would require exceptional situations to force them to contact their suppliers during the vacation. The debt crisis seems still to be much more commanding and with the corporate sector having recovered pretty well after the crisis in 2008 most business owners are going into the holidays with far less stress than in the past years while politicians are now the ones who need to work throughout the vacation period to find adequate solutions to protect the world from another ‘after summer’ shock like the one we had three years ago. For the time being things seem to be running on a razor’s edge and the private sector seems to be reasonably relaxed about the situation as it believes they cannot change anything anyway.

From Asia one continues to get pretty mixed results. Huge sales of hides from the US surprised the market on Thursday, but they just confirmed the strong week last week. Everyday a new story about good and bad things and a clear direction can be seen. The south of China is still pretty influenced by the tax investigation and every week some traders and importers and also tanners are being prosecuted and the import trade continues to be negatively influenced. There are ongoing stories of containers arriving in Hong Kong and needing to be re-sold or to find other ports, but nobody except those really involved seem to know what the full truth is. The fact is that the trade in the north doesn’t seem to have been touched at all and a number of tanners are still benefiting from the situation in the south. The global kill is down and it is obvious that the supply side is substantially reduced in the second quarter.

We think that the market would be under far more pressure if the normal quantities had come to market this year. With less supply suppliers haven’t felt as much pressure. This has kept prices and the market pretty healthy and price levels have just come down by between 5% and 10 % from their peaks in April. Some get used to it and believe that we have finally reached a new trading range and plateau. Well this has been predicted an endless number of times in history and so far the raw material prices have always dropped significantly back and did not pay any attention to all the theories as to why hides and skins are trading at much higher levels. The present valuation is again pretty much owed to the financial markets and far less to any fantastic profits and prices that can be achieved for leather. So, let’s see if history repeats itself or if we are going to justify the new valuation and price ranges some believe we have reached.

After the strong performance we had seen last week, we have experienced pretty much the opposite this week. Interest was pretty slow and few offers met even fewer bids. If it was the missing offers that scared interest away or if it was missing interest that was not attracted by the offer lists, we do not know. Nobody is really stressed enough to react with price variations to the bouncing weekly activity we have seen now already for a while. We saw interest for some low grades this week and for the rest there was no feedback. The currency offering good chances last week wasn’t of any help this week and so very few trading chances were seen. With regard to sales it was one of the slowest weeks in 2011 and we don’t think that we missed a lot. If we are not mistaken tanners are still not willing to consider anything other than sliding prices and they can wait until the sellers listen again to moderately lower bids. We can’t see any reason for substantial correction either and without the kill picking up who will be forced? In the absence of any real trading activity we fail to place the market anywhere other than stable.

The kill: Pretty useless to make any statements about the kill in the present period. It is low, the beef demand is poor and until the end of August we fail to see any reason why any of the parameters will change. Only a surprising and sensational export demand would change things.

What we expect: Despite the slow sales this week we do not see yet any immediate pressure building on the market. We believe we could even go on for some more weeks and still nobody would be impressed. Tanners will not pay more money and sellers will not consider any less. Pretty much what we have seen for a number of weeks and only more weeks of strong sales will push the market higher. Possibly tanners have covered their needs and will now wait for their next chances.

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	€ 1.90	Steady
Dairy cows	15/24,5 kg	22,5/23,5 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
	30/+ kg	33,5/35,5 kg	27/+ kg	29/31 kg	€ 1.50	Steady
Bulls	25/29,5 kg	27,5/28,5 kg	22/ 27 kg	25/26 kg	€ 2.10	Steady
	30/39,5 kg	36,0/37,0 kg	24/34 kg	31/33 kg	€ 1,90	Steady
	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—26.07.11 - leatherbiz: Lea

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German Perspective—26.07.11