What happened this week: The market and the mood remains in the tight grip of the uncertainties of the international economy. The EU debt crisis, the slowdown of the growth in China, the financial woes in part of the private sector in China and the lagging economies in the USA and other countries are dominating the headlines and weigh on the mood in the leather industry. Nobody knows what is going to happen in the near future and consequently most of the players in the leather pipeline are trying to reduce risk as much as possible. This also includes raw material buying and this is now restricted to the minimum needed.

In general the news regarding leather demand is not positive. In particular the upholstery and shoe upper segments are reporting slow orders and we are now facing all the consequences we had to expect after the overheated price levels in the first half of the year. Leather has been substituted and is now also facing the general downturn of demand and risk aversion due to the general problems of the global economy. The timing problem due to the Christmas and Chinese New Year break is also now having a strong impact on the situation and demand for hides and skins. Since the market is basically in a downward trend and prices have now fallen anywhere between 10-20% depending on type and levels, the rumours about cancellation and problems of L/C openings are rising. However, in our case it is mostly just rumours and we have to admit that we are not that negative and find behaviours from the clients still absolutely adequate and acceptable.

We actually see the market still in an orderly retreat and not in any kind of a chaos or paralysis. So far we are just seeing the orderly deflation of the price bubble we had inflated in the first half of this year and a lot of speculation has left the market too. The good news is however, that trading has not come to a standstill and even in the falling market, sales haven’t come to a halt so far. There is caution, but no panic so far. Negotiations might be tough; buyers might believe in further declining levels, but the good and solid ones are still tanning and producing leather and are in need of raw material. Due to the other factors such as financial issues the retreat of speculation the market is now out of balance and sellers want to have their raw material production sold. The good news is that we are slowly approaching price levels which have proved in the past to be workable in the production of leather and so it seems that we would now need to sort the congestion out in the pipeline and would then have a fair chance to find a bottom in an acceptable period of time.

December will remain tricky with productions in Europe shutting down in three weeks from now and the interruption of shipments to the Far East due to the Chinese New Year festival. The kill should remain high for some time. Under the condition that the EU debt crisis will not deliver us any further bad surprises before the end of the year, things could normalise again in the New Year when productions are returning to normal and prices might have reached adequate levels for the production of leather. Then confidence in the material might return.

It is not only the level of prices that is the problem, but the high volatility too which is scaring buyers away. Stability would also be an issue for the year 2012. Trading this week was not too active, but sales were also not nil. It is a hard fight to get the sales done, but in the end the weaker EURO helped in many instances and so realistic buyers were willing to pay workable levels and only shipping was an issue. Very few are still willing to take shipments in 2011 and most of the interest and activity is for February 2012 arrival.

With the Christmas break in Europe it means a lot of salting this year in December. Prices were almost steady or only slightly weaker thanks to the EURO. Demand was reasonable for dairy cows and heifers with steady prices while we had to take an aggressive bid to move some material. The gap between international price for males and what the German butchers think about the value of their hides is far too wide.

The kill: The kill is still good, but we might have already seen the seasonal highs. The high slaughter of females and the reduced numbers of bulls is impressive. Generally the kill should be good and steady until the end of the year. 

What do we expect: It is hard to foresee any short term change in the market. The decline should actually slow down now, but nobody knows really what the individual positions of the sellers are around the globe. If the stories of cancellations are true, more unsold material would come to the market too and there might be more need to move product and this can today only be achieved by price. What the individual decisions are has yet to be seen. Fundamentally we think that the first half of December will be tricky and we hope for stabilisation towards the end of the year.

Share this story: