US Perspective–23.07.11
23/08/2011
www.themaxfieldreport.com
The common theme in conversations with members of the big packer market was that this was an uneventful week of trading. Sources share that interest started out decent at the beginning of the week, albeit at lower levels; however, once buyers recognised that packers had no interest in selling at lower levels, the majority of buyers withdrew their ideas. For the most part, it appears packers made their best effort to hold prices steady, countering bids within a dollar or so of asking prices, while choosing not to counters ideas two dollars or more below their asking prices. However, the consensus of the trade is that packers likely sacrificed volume in order to hold prices steady, lending fuel to the speculation that it is likely packers who will have to accept less money this coming week.
In the meantime, worth noting is that we heard there was modest interest at decent price levels expressed on Jumbo hides and if our sources are correct, there were a fair number of these hides sold in the last couple of days of last week. In the meantime, we continue to hear unconfirmed rumours accusing some packers of selling direct to tanners at levels of $91-$91.50 for HTS, while we have also heard there were traders this week indicating they were willing to sell HTS at $92 delivered. Other sales shared include regular weight packer BS at $84 and Jumbo BS at $87, while we also have a sale on HBH at levels of $72 that would be a dollar lower than the previous week. We also picked up sales on HNS with lighter weight material at $85 and heavier weights at $86, while trading on HTS has sales of regular weights registered at $85 and Jumbos at $88. The only other trade was a packer laying claims to selling HNDC in the north at $72.
The market is exhibiting some softer subtle undertones. Whether pundits prefer to blame the volatility of the financial markets, people departing for Asia starting this weekend or the fact we are still in the slow season for most tanners, there simply is not any real “zip” in the market. In the meantime, it appears the consumer is voting with his wallet as there are numerous reports coming out from many of the major retailers adjusting their Q3 sales estimates, meaning retailers will have more inventory than they planned heading into the Q4. If not to add insult to injury, Detroit’s Big Three announced last week that they too will be adjusting their sales estimates for the remainder of the year and although we know there is still decent demand in China for all of the above, we cannot help but suspect this has to make the bearish argument a little bit stronger.
The other major roadblock that needs to be considered is the tightening credit policies in Asia and especially China. Recognising that tanners have not had any reprieve in hide prices since the spring of this year, there is no question it is taking a lot bigger share of their capital to finance their raw material purchases. Something else to keep in mind as we move forward is that oil prices have moved significantly lower. This will more than likely make oil-based synthetic alternatives a bit more attractive and is likely to only place yet another hurdle in front of those tanners seeking additional increases on new leather business.
Looking ahead to this coming week, although sellers continue to insist that tanners need to buy, we are not sure if we agree with this assessment. True, there is no question that there are some buyers “prowling around” and low-ball bidding many of the major players. However, at the end of the day, we continue to point to shipments and producers have failed to ship in excess of the slaughter 14 out of the last 15 weeks. Big packer prices are roughly $12 higher than a year ago, while cowhide prices are more than $15 higher, both close to all-time highs. Looking ahead to the next couple of weeks, considering some of the things we mention above it is difficult to believe the market has much upside potential.
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