German Perspective - 08.05.12
08/05/2012
The general relaxed mood of suppliers and customers in this field seems to confirm that prices and contracts have already been fixed until the end of June if not until the summer holidays. That would actually freeze prices for quite a period and give packers the chance to test the market with offers on the upside for small test-lots. If there is any cloud in the sky in that segment, it is the start of industrial unrest in the German metal industry, which could eventually also hit automotive production. It depends how negotiations progress and how quickly a compromise can be achieved if there is any threat to the supply chain, and in our case in particular to automotive leathers. It will certainly not stop car sales in the luxury sector, but it could delay production and congest the supply line. Some are even of the opinion that for some car manufacturers a strike would be coming at the right time with sharply declining sales in the EU markets and certain models already piling up. Bad news from the US labour markets and also a grim EU purchasing manager index did little to improve the general sentiment. However, the premium manufacturers themselves remain pretty optimistic and this will spill over into the packer industry, which will want its share of the profits.
In more bread-and-butter businesses for more standard types of hides, companies are having a more difficult time and independent of the general positive feeling packers have about their product and its value, we still don’t believe that it is easy or one-sided. Fundamentally there is or was a widespread opinion that raw material prices can only continue to go up. Any decline in demand is only a break and not a turning point. As a supplier there was a general conviction that a decline in demand was not a threat to prices. With the unstable situation in the general global economy, some cracks are beginning to appear in this theory. So far there is still little movement either way in the market. The imbalance is still not strong enough to trigger any serious move. Like many other commodity markets the price trend remains in very narrow ranges. Also the leather business is delivering very little news or interesting facts for the raw material market. Most brands and labels as well as the premium auto segment are still very positive about their business, but mainstream leather product sales are still pretty unclear and so everybody can pick what suits. To us it seems much easier. The luxury side is still steady and in good shape while the standard items are still under serious price pressure and material prices are still the main driver of the business.
Despite all expectations and theories, leather in general consumer items is still a very price-sensitive material. Generally it is also true that large companies on both sides of the supply chain (packers, retailers, automotive manufacturers, luxury brands) claim as much profit as possible for themselves and make it increasingly difficult for companies in between to handle their position.
Sales this week were limited. A few bids for cows and some renewal of regular programme sales were all what was generated this week. Prices were mostly steady. Higher levels were not obtainable while lower levels couldn’t be taken because abattoir prices still leave no room to manoeuvre. Due to the holidays it remains to be seen how representative this past week actually was for the general market trend.
The kill: The first full week after the various holidays brought a reasonable amount of slaughter. Beef sales are still not really improving and in the coming weeks we are not likely to see any further increase in the kill figures. Spring and summer are just not the seasons for beef consumption. Hide weights continue to fall and this is just the beginning of the decline.
What we expect: As boring as it may seem, we see nothing that could drive the market. Buyers’ and sellers’ positions are like concrete at the moment and nobody is winning the upper hand. It may be outside factors that direct the next move. We are only at the beginning of May and there is still a long way to go before the summer, which is usually the low season for leather production. In the end this is a battle between the margin targets of the big conglomerates on either side of the market and the end is still not in sight. For the coming week we expect little movement on price lists.
| 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 |
Softer |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1.70 |
Pressure |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1.60 |
Pressure |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2.20 |
Pressure |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 2.05 |
Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.90 |
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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