German Perspective - 27.03.11
What happened this week: What could one actually expect now prior to the Hong Kong Leather Fair? Well, not much with the sentiment having changed so much over the past ten days already. A lot of people are already travelling in Asia and running into each other in the main tanning centres, airports, hotels or main clients. Being in this trade for a while and knowing many people for the same period, it is pretty obvious how nervous many suppliers are and one doesn’t need to be a doctor of psychology to see quickly how people are positioned these days. You can literally physically grab the fear, that something happens to this market and the hardest price pushers of the past months are today the ones with the biggest scare.
Stories are told about how scarce hides are, how well everybody is sold, how difficult it is to meet shipping times and so on. Looking into the face, the body language tells you something totally different. They are scared that something could happen to the market and either existing contracts could become a problem, or even worse the hides which would still need to be sold could lose a bit of their value. Sure, a moderately rising market is the safest and best for a seller, true also, that after a sharp rise a period of stabilisation would be most desirable for sellers and in some cases buyers too, but in the end it is still the absolute level of prices which counts and this seems to be too high.
When buyers mention that they would like to see a stable market for now, it is easy to reply, but presently this doesn’t obtain the wishful reaction. Buy at market and asking level and you get a stable market. In the end people were quite happy that they had an excuse with the Hong Kong Leather Fair and so they could politely postpone the decision for another week in the hope that more savings will develop before then.
Summarizing the Asian experience so far one can say that tanners are paralysed by the raw material market level, that upholstery tanners are writing mostly deep red ink and the others are not too comfortable either. Hide prices are said to be at least 10% too high with leather prices and demand hardly seeing any signs of improvement. Energy, chemical, labour and affluent costs are all higher and still rising and this makes the raw material cost even more crucial. What is strange too is the fact that more tanneries have been seen producing below capacity than on full or even above capacity level. How that fits into a firm hide market remains a mystery. This excludes of course the heavy, high quality material used in the automotive industry.
Another topic of interest was that we see the classical market reaction to high raw material costs. Corrected leathers are back, patent leather too and splits are as well a major topic of discussion. Medium and higher quality hides are simply too expensive and so tanners and leather are consumers eagerly searching for their cheaper alternatives – as long as it is leather. The gloomier outlook for the global economy and the rising cost of energy and food are also adding to the general concern and so all that remains is the hope for rising consumption and wealth in the emerging markets.
Trading has been very light for us this week. Except for a handful of sales not much interest was seen and no volume could be placed. In general one could say that for the moment the market has gone too far and the correction mode continues. So we are a in duplication of the situation we had seen already some time in year 2011.
The Kill: There is nothing to report from the kill. Just steady, and butchers continue to suffer from low margins and do not want to see the writing on the wall for the main by-product.
What do we expect: We travel now with little expectations to Hong Kong. We think that we can be lucky if further sales for the sake of relation and to cover some short term needs will be the result of the APLF next week. Prices and concerns are now overtaking and the customs controls in China have increased the hopes of the tanning industry that price reductions can be achieved. It won’t come quick and fast, but it seems to us that selling could become now like pulling teeth for a while with very, very hard fights for the prices.
