German Perspective—24.01.12 - leatherbiz: Lea Leatherbiz

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German Perspective—24.01.12

24/01/2012
What happened this week: This past week was reasonably active. Most of the domestic trade was still busy digesting the eruption in abattoir prices. Most were asking if the steep rises can be passed on and to what extent. The euro gained strength, which added up to 2% from the lows seen before. Asian buyers were mainly saying ‘bye for now’ and left for their New Year holidays. From Italy there was more news about payment delays and tannery closures were noted, which did not really confirm any of the positive sentiment many are trying to stamp on the market. Fundamentally the market is determined by the global attempt of packers to control supply and to convert this into higher hide prices. In a way, they have been successful as the story of limited supply has come at the same time as replenishment needs for tanners and the corrected prices we reached in December.

At the December levels many tanners were back into the black with their calculations; those with courage hit the bottom, while others fuelled the rebound by trying still to catch cheaper material. They were easy victims and with the weaker euro at the beginning of 2012 a cocktail was mixed that made many believe that the market weakness towards the end of last year was just a blip and we are back on track now. We remain sceptical.

Many of the big slaughter companies tend to believe that the control of supply gives them the right to fix the value. This may work in other essential commodities, but not with leather, and the small segments of automotive and luxury items cannot be considered as representative of the whole of the commodity. However, in a period in which politics rather than market and economic logic is calling the shots, it is unlikely that this is part of the consideration. While some of the price rises since December have been cushioned by the exchange rate and by the fact that overseas prices never dropped as far as levels in Europe, European tanners are now experiencing shock at the new asking levels. Some of the tanners tied to fresh hide supplies may have to bite the bullet, but others with some inventory may be able to side-step the fray for a while. The leather business may still be steady here and there, but it is far from being adequate for the season, at least for upholstery and for many shoe upper leathers too. That things are difficult for many can easily be seen in the payment performance. Many payments are late and letters of credit are not coming in at the speed normally seen in a fundamentally firm market. This leads to another aspect of the market evaluation. Despite the market rise and the sales made, one cannot actually say that most clients are crying out for hides; many had to be reminded to open their letters of credit before leaving for their holidays to avoid shipments being interrupted for several weeks.

Very few were eager to have hides on the boat in the coming weeks. This is not really a sign of desperate demand and it seems rather that many Asian tanners were just buying so as not to miss the lower levels rather then really being in need of material. In Europe only the tanners who have received additional leather orders or those who depend on renewable fresh programmes were willing to negotiate and buy. Others just ignored what was happening and didn’t bother to buy. This limited the sales to isolated contracts with a few cows and a few bulls changing hands. The volume can be called acceptable, but far away from being brisk and there was absolutely no broad-based interest.

The kill: We can’t understand the talk of sharp declines in the kill. We are in January and the kill is never strong, but we are on seasonal norms. If there is anything worth mentioning, it is the slaughter mix because bulls are missing. This should change in the coming two to three weeks.

What we expect: Maybe we are too negative. The first quarter is normally always busy in production, but this year it seems to be less busy. For us, money and prices are still decisive and that is why we think that the rebound will run out of steam. Over the coming weeks the Asians will take their holiday. Let us see if they use their mobile phones to buy hides during that period. If so, we are ready to change our minds, otherwise we tend to believe that things will cool off and the trend will lose steam.
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 € 1,90
 Steady
  25/29,5 kg 27,5/28,5 kg 22/27 kg 25/26 kg € 1.70
 Steady

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 1.70

Steady
 

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 1.55

Steady
 

30/+      kg

33,5/35,5 kg

27/+   kg

29/31 kg

€ 1.40

Steady
Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 2.00
 Steady
  30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 1,85
 Steady
  40/+     kg 45,0/48,0 kg 34/+   kg 38/40 kg € 1.60
 Steady
Thirds 15/+      kg 25,0/27,5 kg 13/+   kg 24/26 kg € 1.20
 Steady
Thirds bulls 30/+      kg 38,0/40,0 kg 24/+   kg 33/36 kg € 1.20
 Steady




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