German Perspective—10.04.12 - leatherbiz: Lea Leatherbiz

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German Perspective—10.04.12

10/04/2012
What happened this week: The confusion continues and we are not really able to clarify the real situation of the market at the moment. The only matter one was able to confirm at Lineapelle in Bologna (April 3–5) was the fact that the stands of the top-end and luxury leather producers were well attended and none of them was complaining about the volume of business or the number of visitors to their stands. Since this is actually what the show is for, that the creative, high-fashion and quality tanners show their ideas and collections for the next summer season, one has to call the event a success. The wealthy of this world do not seem to be slowing their spending or at least their suppliers do not believe they will do so.

Other exhibitors and visitors at Lineapelle were less clear in their evaluation of the situation. There remains a general consensus that raw material prices are too high in relation to obtainable leather prices and also too high for the financial resources of many tanneries, at least in Europe. Discussions were pretty open from a large number of tanners making it pretty clear, that the crucial mixture of negative profitability, rising cost, high raw materials prices and restricted bank finance make the life of a tanner extremely tough these days and serious raw material management almost impossible. This has forced many into hand-to-mouth purchasing in the recent period of rising raw material prices, and what has been to the advantage of sellers might become a heavy burden one day. One has the impression from many conversations that a certain fatalism has come in, with tanneries not being in a position to create any defence strategy against the raw material market any more and having to gamble and hope that time plays for them.

The fundamental mood of the tanning industry in Europe is certainly pretty negative in view of the sharply higher raw material costs. So, the hope for raw material sellers lies more than ever in Asia. At least under the risk aspect and potentially better cash resources, the markets in the Far East offer more support, many feel. However, the only thing remaining certain at the moment is that nothing is really certain. The market is still more driven by stories rather than facts and since most of the reports around the globe are more written and influenced by sellers than buyers one has the impression, that only one side of the coin is presently represented. Supply shortages, need-to-buy positions and so on are the main topics of the pubic discussion.

While some of it is true, one has still the impression that the other side of the market position is not reviewed enough. Slowing leather demand in general, insufficient leather prices, speculative long positions, shipping problems, seasonality and cash-flow issues are certainly not sufficiently mentioned to give us a complete picture of the market situation. It is too one-sided to have total confidence in the public picture painted at the moment. We know, that this position is not very popular amongst sellers but we believe there are good arguments for seeing the risk too. What we are missing at the moment is a real market reflected by activity, particularly at fairs like the ones we have had we had in the last two weeks. If one is realistic, both shows, APLF and Lineapelle, were rather dominated by the same stories in the aisles than a lively trading and selling atmosphere to confirm price levels or directions. Finding one customer who is willing to pay ‘the price’ is in our view not enough to confirm the views of supply shortages and low inventories. What might be correct for isolated cases might not be enough in general.

Trading this past week was light. There is a sale every day, but with the holidays in China and Easter in Europe interest and activity was minimal. Prices have been on a weak-to-steady basis and the firmer US dollar made some lower bids look reasonable in the end. The sharp rise in shipping costs are however wiping a lot of revenue away, so that the net prices in euro are melting down.

The kill: The kill is what one can expect at this time of the year and the numbers are cut by the shortened working weeks. April and May are always slow months so we don’t expect any change for a while.

What we expect: Well, we are pretty isolated in our position of limited enthusiasm. Most have surrendered and believe that the supply story will continue in command. We continue to see more risks than opportunities in this market, without saying this is going to change things right away. However, anticipation is everything today and if we had to bet what the next move in the market is going to be, we would see it down rather than up. However, last year this took a while to materialise.
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
 Softer

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 2.00

Softer
 

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 1.70

Softer
 

30/+      kg

33,5/35,5 kg

27/+   kg

29/31 kg

€ 1.60

Softer
Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 2.20
 Softer
  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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