German Perspective—18.10.11 - leatherbiz: Lea Leatherbiz

Intelligence

German Perspective—18.10.11

18/10/2011
What happened this week: The week after the Chinese mid-autumn holidays did not deliver the activity many were hoping for. At the start of the week there was some interest and the US dollar was still reasonably firm before it started its steady descent until the end of the week. In the end it was down almost 3% for the week, which erased almost all of the windfall profits and support the market had seen when the Chinese were on holiday the week before. So, export calculations looked pretty poor and hopes that the currency might balance out some of the margin problems of the hide trade faded rapidly.

As mentioned, the week began with some interest from Asia but when bids were not accepted immediately, buyers found excuses very quickly for withdrawing their orders and were not really willing to negotiate. Only very isolated trades were booked and the level of concern is constantly rising in the East. Cash-flow is now becoming an increasing factor. Payments and letter of credits are coming in late and the majority of shipments are not on time. Quality issues that can be considered market-related are heard more frequently: cash-flow, insufficient leather orders and concerns about the coming months are rising. The leather pipeline is simply not happy any more and worries are dominating. The only exception might still be the premium car industry where production lines are still running at full capacity and working down their extended order books. While the auto brands are still bursting with optimism for 2012, some are starting to wonder if the premium brand sales boom will persist or if small, economical cars will be the stars of the future, certainly consuming less leather. Packers don’t want to hear about any problems or price adjustments. They still believe in the scarcity and premium value of their by-product. No way that the bad times could ever return. Since a sensible and coordinated decline of prices is not on their agenda it will become a bet. Red or black. Recovery of the economy and return of demand pretty quickly or the decline of leather demand becomes steeper for the coming season because the price of the material has become too expensive and keeps the consumer away.

Even if the first option comes true it will still take some time and we’ll have to see if producers around the globe have the guts, the space and the money to hold out until raw material is needed again. Many are still complaining about the money they “lost” in 2009 when they did not believe in the market recovery; they have “wasted” all their good product “for free” and made all the traders and tanners of the world rich. They are determined this will not happen again and defending their prices with all their might. Let’s see if that works. It it is not a practice in the hide market alone, but is also being seen in other commodity markets too.

Our concern remains the cash-flow issue. The leather pipeline is far less liquid than other commodity chains and hides and skins are not really a good investment for storage. The majority of the tanning industry has faced a difficult environment in 2011, starting with high raw material prices that could not be translated into adequate leather prices and consequently ate cash. This is being followed now by reduced leather orders, increasing semi-finished and finished stocks and increasing cash-flow problems for manufacturers as the money flow dries up. So far hopes for a recovery of production in the last quarters have not been fulfilled, so the pipeline is becoming vulnerable.

Trading was no fun this week. Bids were generally few and one had to run to say yes to what was offered not to lose it. The only exception might still have been the premium hides where the demand to fill the drums is still good enough to absorb production. Revenues were also somewhat lower for currency-related reasons and sales were not really balanced enough to clear the production.

The kill: The kill is starting to recover. Weather is still good for the time of the year, but no longer extraordinarily warm, as it was at the beginning of the month. The weights are still below the normal average, but we hope they will start to move higher now week by week. The coming weeks should bring slowly rising numbers, accelerating when the nights become really cold.

What we expect: There is no question that pressure on prices for the majority of production is mounting. The defence lines are still strong and organised, but the next indication point will be the Lineapelle fair in Bologna this week, where leather buyers will be around. Shoe and leathergoods sales have been meeting expectations so far and shelves are full and waiting for the right weather. Seriously one can only expect further price slides or a positive surprise in Bologna with positive news about leather demand.
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 € 1.65
 Pressure

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 1.75

Weaker
 

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 1.50

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 € 1.95
 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 € 1.30
 Weaker
Thirds bulls 30/+      kg 38,0/40,0 kg 24/+   kg 33/36 kg € 1.30
 Steady



Leatherbiz.com cannot be held responsible for content if the language setting is changed from English.

The translations provided by Google Translate are automated and therefore might not be accurate and may contain incorrect, offensive or misleading language. We offer this facility as a guide only.