German Perspective—13.03.12
13/03/2012
After the sharp gain in hide prices, which a number of players are still failing to explain, many want to meet suppliers and tanners from around the world to get a better picture of the situation; many also hope to obtain better insight into why it all happened and what can be expected for the second quarter. For the time being most players are helping themselves to the common explanations and expectations. The supply side and the reduced slaughter over the past months is enough justification for many for the jump in prices since December. The second is the general belief that prices will fall after the Hong Kong show because they always have. A market can react due to the fundamentals of supply and demand, but sometimes it can also be the reflection of a self-fulfilling prophecy. We are still convinced that there has to be more to the sharp rise in the market in the past three months than just the reduced supply. For such a constant and massive price increase it needs to be more than just fewer hides becoming available, it also requires stable or rising leather demand or speculative activities that allow prices to rise. It seems that there could be a bit of both. Domestic leather demand in China has been better than tanners in China tried to make the market believe and the recent publication of the profit situation of the Chinese leather industry painted a different and successful picture of most of the industry for 2011. However, this is all in the past and normally one has to look into the future and this means one has to look at 2012.
Under normal circumstances one wouldn’t be too optimistic with all the turmoil in the global economy, but the strong performance of private consumption in the emerging markets and the wave of cheap money which continues to be poured into the system has boosted commodity prices. One has to assume that the tiny market of hides and skins has been discovered by some who want to use it as a playground for investment. There is a lot of indication that some big players in Asia used large resources of money to buy into the market after the correction in the last quarter of 2011. The lower kill and the cautious inventory management of the regular tanners made it pretty easy to gain control of the market and let prices soar. Considering the price-gain and the approximate average price paid for hides, the investment would offer a pretty good yield in a very short time if someone can unload the stocks at market prices and cash in.
The bill would be paid by the ordinary tanner who had to buy into the rising market; many have been caught short of inventory because raw material prices did not match leather prices. Many European tanners were hit most, being confronted at the same time with difficult sales and insufficient order books. One can see this in the number of operations closing quietly.
Trading during this week was pretty light. At the beginning of the week interest was still brisk, but not at higher prices anymore. Buyers were willing to pay last week’s prices but not more, with the only exception being extra heavy male hides for the automotive industry, which were able to obtain increases. A number of players seem still to be pretty optimistic and so abattoir prices shot up again. It remains to be seen if the levels paid are seen in the marketplace.
The kill: The kills remains more or less steady, a bit more one week, a bit less the next, but not much fluctuation in general. Without any export business it is also hard to find any reason why numbers should actually move. The local market seems to be well in balance and so there is not much reason why the situation should change.
What we expect: There is little reason for the market to change. Now everybody will wait for the APLF exhibition in Hong Kong (March 28–30). This might reduce buyers’ interest and sellers will not change their asking prices before they have finished their Asian trips and meetings. We see that the market is made by special interests, but we are not so sure about what that will mean for the hide market in the end. Regarding prices, there cannot be much change expected.
| 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 | € 2,10 |
Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1.75 |
Steady |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 2.00 |
Steady |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1.70 |
Steady |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1.60 |
Steady |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2.20 |
Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,95 |
Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.80 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1.40 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.40 |
Steady |
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