German Perspective—06.12.11
06/12/2011
Looking at all obtainable information about production and shipment in 2011 the market is not in balance. This is less a problem of the present supply-and-demand situation than a consequence of old stocks from the summer; unsold hides are still there and the excess hasn’t been cleared yet. Without this clearance, which would come from demand exceeding supply or tanners showing a willingness to increase stocks because they consider prices to be attractive, the problem cannot be solved. The situation might be different for individuals, but that doesn’t change the general picture.
The seasonal timing to clear stocks is pretty difficult with the Christmas and Chinese New Year break ahead of us and buyers still considering the timing on their side under the present conditions. Prices are not really tempting for tanners and they feel they have the market trend and the time on their side. Consequently we just have what you always have: when the market is up, no seller can imagine that it could ever stop and when the market is low and falling the buyer thinks exactly the same. However, neither side is ever right and there is always an end to the trend and one just has to find the right time for it. It is actually pretty difficult to find a reason at this stage why the trend should end. The leather business is still not strong enough to make buyers believe that it could be a good idea to enter the market in volume, and with the production breaks and the upcoming end of the fiscal year in Europe tanners are not seeing any reason why they should act now and not later. Consequently, the near future will still be difficult for those who want and need to sell.
However, we have already undergone a decent market correction and we still fancy the idea of fair value for hides. In our opinion the majority of the correction has already been made and only a little more would be justified. Markets however don’t normally do what is justified and the timing issue is a problem too. So, why should prices not overreact again before finding a platform?
Trading was light this week. In particular Asian buyers remain on the sidelines. Quantities were low and only bits and pieces were taken. Prices remain under pressure with some sellers still taking ambitious bids to move hides and hoping for lower abattoir prices in the coming month. Mid-week the weaker euro eased the pain a bit.
The kill: The kill is lower than what we thought. Peak production seems to be over and there might just be an upswing before Christmas. Still many more females in the mix.
What we expect: We do not expect a sharp return of demand and turnaround of prices. Before things can really change the overhanging unsold positions need to be cleared. This seems hard to imagine without further price reductions. However, we are getting closer to the point where a more long-term view could be brought back to the agenda again.
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