German Perspective—14.02.12 - leatherbiz: Lea Leatherbiz

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German Perspective—14.02.12

14/02/2012
What happened this week: Who cared about the selling market this week as a fabulous buying bonanza at the slaughterhouses started? We thought already last week that abattoir prices were too high, but we have to look for new definitions of what they are today. Memories are shot in this trade and learning curves non-existent. We are propelling market levels back to where they have been a number of times in the past and it seems we just want to prove it again how inadequate they can be.

Some people may have forgotten, that the euro has been sharply recovering because the financial markets consider the situation in debt-burdened Europe to be better now than some weeks ago. Why, looking at the present situation, we do not know. Anyway, the fact is that certain changes at the abattoirs with new buyers looking for more market share has rumbled the market situation and abattoirs have, with great pleasure, taken advantage of the situation. The combination of lower kills and market fights made their day and allowed them to generate returns for February production they hadn’t thought possible a week ago. Well, it is carnival season in some areas in February and such things can happen. On Wednesday, 23 February, carnival season will end and some might have quite a hangover. In the meantime it’s hard to raise asking prices quickly enough as the euro extends its ascent, making EU hides even more expensive.

For the tanning industry and the few remaining free processors, the situation is difficult to handle. It is obvious that the present market situation has little to do with the realities in the leather industry. Present prices could not be converted into adequate leather prices last year and nor can they today. So what has changed? One way or another prices have to return to adequate levels and this can only happen by increased supply or lower demand. The seems to be little hope for higher beef consumption in the short term, so the supply route seems less possible. Questions remain over whether demand could fall.

On the one hand it seems that tanners in Asia with December and January purchases have already covered quite a bit of their immediate needs and only the latecomers are still in the ring. In Europe the ones depending on fresh, chilled supply can hardly step out, while the rest of the EU tanners–in particular the Italians–are pretty much on the sidelines. They found January prices too high and bought at minimum levels, so what area they to think about the new levels?

The leather business doesn’t seem to see any change or improvement. Everything is still the same. Automotive is okay, luxury accessories as well, while upholstery and normal side leather are still pretty flat with production well under capacity. Considering that many clusters in the leather industry here and abroad are reporting that orders and production are way down, it is surprising to see raw material prices climb; the lower kill can’t completely explain the situation. Analysing the globally available kill numbers, sales and shipments still have question marks over them. It seems there is a good deal of speculation in the game, and politics as well.

Trading this week was light. At the beginning of the week there was still some interest from Asia for cows and some isolated sales were accomplished. Prices were fairly steady. Bulls sold only to the regular domestic buyers while Asian buyers ignored these hides completely and were absent from this market. A few low grades changed hands too, but in small numbers only.

The kill: No changes in the kill. The carnival season generally means low demand for beef and no exports, so there is tight control of the kill and the supply of hides. Weights are pretty low again and cows still dominate the slaughter mix. This is not really unusual for the time of the year, but the year has had a pretty low start.

What we expect: If we look at the steep rise of raw material prices since December, and considering that in most of the leather business no improvement can be detected, there is no reason to believe that the present situation is a fair reflection of the reality. The market has to be divided into different sections and apart from automotive and luxury goods, companies have to deal with the fact that raw material prices are too high. Speculation and reduced supply can work well in the short term, but long term either the price of leather has to rise sharply or hide price have to fall back to adequate levels and a workable valuation.
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

€ 1.85

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

€ 1.45

Steady
Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 2.10
 Steady
  30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 1,90
 Steady
  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
 Steady
Thirds bulls 30/+      kg 38,0/40,0 kg 24/+   kg 33/36 kg € 1.30
 Steady





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