German Perspective - 06.03.12
06/03/2012
What we find most interesting in the whole market discussion is the fact that the serious and real numbers about sales and shipments do not at all correspond with the general interpretation of the situation. As firm as the market might be and as short as the offer lists may look the published numbers are certainly not proving any significant increase in sales or shipments. Maybe the restriction of offers and lower kills have been able to sell the market the story of huge interest and huge sales. What is true however will be seen in the future, but for the time being one should consider that the stories are recognised more than the facts.
The market players who see a benefit in rising prices remain in command and are pretty successful to justify and push prices higher week by week. From the standpoint of the seller, a firmer market is always easier to handle than a weaker market and so one can hardly expect global producers to talk against their major by-product. Considering that the beef business at the moment is hardly profitable anywhere, every extra revenue is highly needed and appreciated.
The main subject of discussion at the moment remains the question of how the strong recovery of prices can be justified. Just pointing out the supply situation is certainly not enough. As usual, raw material prices have to be compensated by adequate leather prices and this can hardly be seen at the moment. So, either one is convinced that leather prices will rise into the second half of the year and will justify the present raw material levels or one can hardly trust that the present trend can be seriously sustained. The situation is definitely getting difficult for a lot of players in the tanning industry. In particular in Europe, cash is continuing to be problematic and the rumours about financial difficulties and payment delays are heard more and more frequently week by week.
In Asia the situation might be a bit easier, but from there we hear a lot of people worried if possibly a lot of the market bonanza and interest could be related to speculation and investment money. It is not a question that the tanning industry was and is possibly still in need of raw material, but some people argue that the speed and the extent of the price rise is related to the simple investment gamble of a number of traders who were willingly using the situation simply to their commercial benefit.
Not many believe in such kinds of conspiracies and support the idea that prices are simply the consequence of reduced supply and physical demand from the tanning industry. Sales this week were limited again. The regular buyers take with great reluctance what they consider to be necessary. We still saw a lot of odd names and interest around, which we just considered to be fly-by nights rather than serious raw material interest.
The Kill: The kill remains pretty steady. It is better than people say and it is less than what we would love to see. However, butchers buy cattle only very reluctantly, because the beef business is not at all making them happy.
What do we expect: The market is now in the hands of special interest. There is no relation anymore between the situation in the leather industry and the raw material prices and very few are actually taking any notice. Since the market can’t stay out of balance forever raw material prices either have to come down and demand has to shrink or leather prices have to go up to enable the tanning industry to continue to pay its suppliers. We continue to watch with great caution and we still have more concerns than hope.
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