German Perspective—30.08.11
30/08/2011
What was good in May is still good today and what was bad is still bad after the holiday break. However, sometimes the markets need an excuse or a trigger and this could come from the present uncertainty in the financial markets. From the perspective of tanning and leather sales not much has changed yet. No order book has been revised, no budget has been adjusted as a consequence of the stock market drops and so we are actually still dealing with the same facts we have been dealing with for some months. The key problem remains, that raw material and leather prices do not match for most of the production. With the new leather season starting soon tanners have lost faith in their hope for higher leather prices in the coming season.
Big brands are showing even less intention to discuss higher prices for leather since margins had been negative in the second quarter and raw material adjustments were inadequate. There is only one intention now: to make sure that the raw material prices will be lower for the calculations of the next season. This will happen moderately but how do you get prices lower? Well, by paying and buying less and many tanneries see their first chance to execute this strategy now. Added to the situation is the fact, that no buyer wants to make any mistakes in the present environment; memories of the experiences of the 2008 crisis are still sticking in the heads. Even though nobody believes that the same thing is going to happen again in 2011, caution is everything now.
The upcoming All China Leather Fair in Shanghai (September 6–9) is a good excuse to gain time. Time is going to deliver more information from the markets and time enables people to check more intensively with the leather buyers. It will also allow tanners to speak to the raw material suppliers now visiting customers in Asia. What is different is that nobody fears that next week not enough hides will be available to cover production. Over the summer a lot was hidden away, such as how well tanners are actually covered and what the real stock levels are along the pipeline. With all the positive expectations until some weeks ago, it’s possible that more stocks are held than many are willing to admit. This might be different for some specific niches, but generally it seems to be a fair assumption.
This situation is also reflected in the sales activity of this week. Selected, standard buyers stand for the commitment to regularity and don’t walk away. Negotiations are tough, asking prices have to be discounted to close the deal and volume is limited. Cows as the cheaper alternative are still easier than males up to 40 kilos, and hides heavier than this still benefit from just-in-time deliveries of fresh hides and the strong order books of the automotive tanners. However, at the moment all types are facing increasing headwinds and ambitious bidding from customers. The leather business hasn’t taken off yet. The US dollar has also been mostly on the weak side of the trading range, which hasn’t helped either this week.
The kill: No Changes. The kill isn’t picking up yet and the numbers have also been restricted by the pretty hot weather around the country this week. For next week lower temperatures are forecast and more school holidays are ending, which should support numbers a little.
What we expect: Unless anything extremely positive happens in the build-up to the All China Leather Exhibition, anything other than further pressure on prices would be a surprise. This might not yet turn into large trading activity and trading volumes might still remain unrepresentative. We must still have patience for some weeks until a better picture can be generated. Until then we believe, that the market will be on the weak side, reflecting the financial markets more than the leather pipeline itself.
| 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 | € 2,15 |
Pressure |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1.85 |
Pressure |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1.85 |
Pressure |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1.65 |
Pressure |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1.45 |
Pressure |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2.00 |
Weaker |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,80 |
Weaker |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.70 |
Pressure |
|
| 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 |
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