German Perspective—08.11.11 - leatherbiz: Lea Leatherbiz

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German Perspective—08.11.11

09/11/2011
What happened this week: Although the US dollar regained almost all of its losses from last week it hasn’t helped the market very much. It took ages, but finally the market realities have regained control and now finally what should have happened over the past months is happening. Even the last optimist has surrendered and as usual when a seller’s market turns into a buyer’s market, sellers from the various origins are falling over each other trying to be the ones who still sell, and buyers suddenly can’t understand the situation any more with so many people knocking on their door with hides to sell. It’s surprising that this did not happen quite some time ago because actually very little has changed recently. The majority of European hides have been overvalued for quite some time and with the retreat of the US market the price-gap between the two alternatives had widened. With higher kill all over Europe, those suppliers that already had stocks in their warehouses need now desperately to move inventories to manage cash flow and warehouse space. How desperate they are the coming weeks will tell us. The European debt crisis continues to weigh on the situation. Not that the consumer is reacting, but most companies are already reconsidering their business outlook for 2012. Most think-tanks are also revising their growth forecast for the coming year and many people are revising their optimism. People are willing to admit that leather orders are down since summer and consider this also to be a reaction to the high prices which had been far too high in spring. There are presently more hides on offer than needed and prices are falling in an attempt to generate enough demand to bring the market back into balance. In the meantime buyers are now either refraining when they have sufficient stocks or aggressively bidding down to test how desperate sellers are and how much they are willing to sacrifice to find a buyer.

The only market still operating within regular frames are the programmed supplies for fresh material within Europe. Since this supply chain can hardly be interrupted, it is more a question of finding a price agreement rather than clients trying to walk away. This is not easy as the abattoir prices are not yet taking an adequate nosedive and market prices are still lower than the relative levels paid in the slaughterhouses. Salted material on the other hand is facing far more resistance and in particular Asian buyers have been shying away almost all week. It seems that most of the business had been taken away in the past weeks by our colleagues from other continents. Things are not becoming any easier because it seems that some other European origins have begun aggressively to offer larger quantities and lower prices, which is generally scaring customers away rather than attracting serious interest. The consequence of all this is that the ideas of buyers and sellers about the market situation and present price-levels are drifting further and further apart.

As far as the Asian markets are concerned, payments and letter of credits continue to come in considerably more slowly than actually planned and scheduled. However, the good news is that we are not aware of any indication that existing contracts will not be honoured. It seems that buyers are really willing to accept their obligations, but one can only hope, that they will be able to keep the support of their banks to generate enough cash to keep the business afloat. High raw material prices and the reduced turnover during recent months are now finally having the expected effects on bank accounts.

Trading this week was almost totally concentrated on the European market. Males were again the best performers and despite price reductions of around 5%-7%, sales numbers were satisfying. Other than that we were not able to trace any serious interest during the week and so sales fell well behind production for the second week in succession.

The kill: The kill: is recovering nicely this week and so did weights. We had to reach November to have something that can be called normal weights for this time of the year. Although the weather is still pretty reasonable and the nights are warm it seems that the numbers will also be good in the coming weeks.

What we expect: We are now in the market phase of looking for a new floor. The problem is that we are facing a lot of uncertainties and influences. Beside the existing problems of leather demand and cash flow a lot will depend on retail sales for Christmas and Chinese New Year. A good clearance will possibly quickly restore confidence despite the gloomy outlook for the global economy for 2012. The recent price adjustments have already helped to make leather production more profitable again and some more moderate corrections will certainly bring us back on safe ground. However, for the moment the market hasn’t found its level and so we believe in the coming weeks the search will continue.
Type Weight range Avg. green weight Salted weight Avg. weight salted Price per kg green weight
Ox/heifers 15/24,5 kg 22,0/23,5 kg 13/22 kg 20/21 kg € 1,80
  25/29,5 kg 27,5/28,5 kg 22/27 kg 25/26 kg € 1.50

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 1.75

 

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 1.40


30/+      kg

33,5/35,5 kg

27/+   kg

29/31 kg

€ 1.35

Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 1.85
  30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 1,75
  40/+      kg 45,0/48,0 kg 34/+   kg 38/40 kg € 1.65
Thirds 15/+      kg 25,0/27,5 kg 13/+   kg 24/26 kg € 1.20
Thirds bulls 30/+      kg 38,0/40,0 kg 24/+   kg 33/36 kg € 1.20




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