German Perspective—11.10.11
11/10/2011
Premium suppliers and big packers are trying to upgrade their positions and their control of supply to hold their prices up and widen price-gap for others. However, this has a limit. The normal premium a buyer is willing to pay can be justified only up to a certain extent. Beyond the added value that is reflected in quality, supply consistency and so on the tanner will not pay more than necessary for long. What we have been seeing for a while is the big players agreeing on a gradual decline of the market, backed by private sales below the official levels. This is starting to find its limits now. The gap is too wide and an increasing number of tanners are now looking for alternatives rather than for long-term arrangements. The situation is too sensitive and difficult for many to feel they can ‘waste money‘ on long-term policies any more.
In the market nothing really has changed. This week activity was pretty lacklustre. China took a holiday for the week and almost completely withdrew from the market. People took a real holiday from the hide market. Those we have been able to speak to are concerned about leather demand for the coming months. Although the winter semester should be pretty busy in consumption and production, more and more voices are expressing fading optimism about the future. The money issue in Wenzhou (of a large leather trading operation collapsing, leaving unpaid invoices) is also interrupting some payment strings and behind the curtains there are concerns that more of the same could happen. Consequently the market is lacking in confidence for the time being and caution continues to reign.
Like in other commodity markets the optimists are not giving up yet. They pretend, that this is only a short-lived period of time until raw material needs replenishment and the leather pipeline will have no option but to give in and to pay. Well, to us it seems that this scenario applies only to a handful of cases while most of the industry carries reasonable inventories, which are stretched by lower orders. Too many tanneries are working at reduced capacity and there is a general consensus that they do not only have reasonable stocks, but also carry inventories of selections that they can’t move, straining their cash-flow situation too. We are in particular worried about the situation in the medium-quality segment of upholstery leathers, which will influence in particular the dairy cow market. Heavy bulls are benefiting from the high level of automotive production, while all lighter weights are facing strong resistance by the declining demand from the side leather industry. We are presently in the spring-summer production period, which traditionally consumes less leather and the re-ordering activity for winter is far less than what people were hoping for.
The currency market was for a long time not in exporters’ favour, but the debt crisis has changed matters and a sharp correction of the euro’s value has compensated for a lot of the price pressure so far. It hasn’t created more demand, but has at least made export prices more attractive wherever they were available.
Sales where patchy this week. Most Asian buyers were using the excuse of the holidays to refrain from bidding or bidding aggressively down. So, only a few sales were concluded overseas and mainly for sideline products. In Europe the heavy bull hides business was at fractionally lower prices, which was enough to clear production. The rest was neglected and did not find any interest.
The kill: In the first weeks of September the kill was promising, but since then production has been falling every week and levels are pretty low at the moment. Levels are similar to the summer and we have to assume it is related to the warm weather we have experienced for the past weeks. With a holiday on Monday this week, this week’s numbers will not be good again. We expect, that with a swing in the weather the kill should improve.
What we expect: We continue to dislike the market conditions. Prices are not moving, but there are more and more regions where the product flow isn’t intact. So far suppliers are still holding out, pointing at reports of reduced supply. However, demand is down too and at this moment possibly more than the supply. Sellers will still not surrender short term, but this should not prevent intense observation of demand and cash-flow.
| 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 | € 2,00 |
Pressure |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1.75 |
Pressure |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1.70 |
Pressure |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1.55 |
Weaker |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1.45 |
Weaker |
|
| 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 |
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 | € 1.30 |
Steady |
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