German Perspective—13.09.11 - leatherbiz: Lea Leatherbiz

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German Perspective—13.09.11

13/09/2011
What happened this week: The show in Shanghai has drawn its curtains and has been well attended as usual. After the long summer break and the recent turmoil on the financial markets people were eager to see how the leather sector is going to digest the situation. This was even more important as there is common agreement about at least thing: most depends on the performance of the Chinese economy and in particular on the Chinese consumer. The good news is that both businesses and consumers in China are so far not too impressed by the difficulties and worries we are facing in the old world. People realise that it has an impact on Chinas exports, but so far it is a worry rather than something that has touched them already.

As far as the fair and the leather business was concerned one had to be impressed by the performance. Normally shows follow a standard pattern of gossip and hellos on the first day, congested activity on the second and quiet and non-eventful last days. This year things started pretty quickly and one had hardly arrived and said hello when clients were already knocking on the door and sitting down for serious discussions. We can’t really remember a show when the first day was so active and efficient with regard to business as this one. The second day was certainly as busy as the first one and even on the last day it was not the deserted aisles one can frequently see. So far, so good and what did this mean for business in the end? We went with little expectation and were more afraid of a serious wait-and-see attitude and an aggressive attempt to push the market down.

It became clear quickly that tanners wanted to dazzle suppliers with ambitious bids. However, it became quickly clear, that this meant also that some needed product and so the initial surprise faded and the situation became a bit more balanced. However, this was not really across the board and it turned out that tanners had been preparing for the event, looking for a way to ease their margin problems.

The more expensive hides (in our case bulls) were pretty much left aside and most of the interest was focused on premium dairy cows, in demand by the side leather tanners to bring down their raw material cost; they saw good clearance at steady or moderately lower prices. However, this time the US dollar was in our favour and the weak euro helped to compensate for lower bids taken. We were lucky that this time some of our material fitted pretty well into the price-quality ideas of tanners. A bit different was the situation with males. Although some sales were made one had to consider serious discounts on market prices. This is painful but not really a surprise because for a long time prices have not been reflecting a fair valuation any more. The other markets are not helping either as US hides and other competing origins are facing similar problems despite being cheaper. Market prices are less than ever really a reflection of the leather demand and tanning business but much more a result of a lot of local political issues which are rather more structural than anything else and commercial calculations are presently the basis of these decisions. In the leather industry one has also to worry about the margins and cash-flow.

So the show went better than expected, but the fundamental problems in the leather business remain obvious. The outlook for the coming season in the consumer markets is not as bright any more and people would love to see retail stock sold quickly to gain confidence. With little hope for any higher leather prices the need for lower raw material prices persists, but this is being strongly resisted by those who produce the raw materials.

The kill: While the kill has been better recently and there was talk about export beef business numbers falling again this past week. It’s not really clear why, but production was down. However, the kill will continue to be better than in the summer season and it might now fluctuate a bit more than before.

What we expect: A lot will now depend on the follow-up. There are still a few hides around the world looking for buyers and it will be interesting to see if tanners have satiated their demand for the moment. The firmer US dollar will ease the pressure a bit on our hides, and fundamentally we think that the market for cows is now settled for the moment while males still have room to adjust. This will be hard work with the present turbulence at the abattoir doors.




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 € 2,10
 Steady
  25/29,5 kg 27,5/28,5 kg 22/27 kg 25/26 kg € 1.80
 Steady

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 1.80

Steady
 

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 1.65

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 € 2.00
 Pressure
  30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 1,80
 Pressure
  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 € 1.30
 Pressure



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