German Perspective - 22.05.12
22/05/2012
What happened this week: Finally what had to happen has happened. The market has hit the wall and the question is how hard and how far it’s going to bounce back. What the trigger was for the change in mood is difficult to say, but it seems that the general weaker trend of many commodities might have finally scared buyers away and they have become much more conservative and ambitious about raw material prices in the past weeks.
For those of us who have been in this business a bit longer, it is no surprise; what was more remarkable was that it took so long. Since there has never been any indication that leather prices would rise to match the levels of raw material prices, and since the economic outlook was never bright enough to justify any further speculation on rising raw material prices, the market had to take a break and had been looking for a correction for quite some time already. The reasons why raw material prices had become so inelastic have been discussed already a number of times this does not need to be repeated. The question is now how the market and the players are going to deal with it.
The same people who have been talking the market up and defending price levels for a long time are now seeing the latest developments as a temporary break and nothing to worry about. Others are a lot more cautious and fear that this could become a new trend. In the end, everything will depend on how good the leather business is going to be, how well leather producers are stocked with raw material and how long they can stay out of the market without buying. The fact is that Asian customers are traditionally not very good purchasers in a falling market and so it is unlikely to expect too much support from this direction in the short-term. The timing is pretty bad because we are just at the beginning of the low season of leather production and even the Asian tanneries have still another six or eight weeks before they really have to decide about their stocks of raw material for the next production season.
Many say that the automotive industry is still active and leather production for this sector remains untouched by the decline in the other parts of the market. Some of the premium brands may still have decent order books but it doesn’t really look as though automotive sales are as hot as they have been in the past two years. There are too many discounts around aiming to stimulate sales for us to believe the stories of good business in general. The most critical question remains the material position on the supply side. For months the slaughter industry has been pretending to have an excellent forward position and a surplus of interest versus the production they have. Other than for premium quality materials, we are not convinced that this story has ever been true.
The coming months will show us what the real position is and a lot points towards a similar market to that of exactly a year ago. Also in 2011 the beef industry tried everything to hold spring prices, and we all remember what happened at the end of the last quarter of the year. With the slowdown of the economy in China it will require a lot of positive news to create a similar positive basis for reinvesting in commodities in the second half of 2012. Pessimistic, optimistic or realistic, the situation in 2012 is definitely different and not better than a year ago. At this stage we still have a lot of interested and strong hands in this market, which will do a lot to prevent a sharp and quick price correction. However nobody can change the fundamentals and this means we have to watch with great care how the consumer reacts and how well the leather industry does in securing new leather orders in the coming months. We still have a strong performance in the luxury market, but we have a pretty weak performance in upholstery and in certain parts of the garment leather sector. The shoe business is a bit of a mixed bag and the warm winter is still leaving deep traps in the volumes of orders for the coming season.
Sales this week have been reasonably slow and only isolated trades can be reported. Most of the interest was for low grades and a bit of the regular heavy male material from European customers. Demand for dairy cows has been fading for some weeks and buyers are pretty much on the sidelines. Prices were supported by the weaker euro and some of the market decline was absorbed by the stronger US dollar.
The kill: The kill was pretty good and we have no explanation why. This week and next week we miss one production day owing to holidays, which is going to limit the numbers as usual.
What we expect: We think things are going to become a bit tricky from now on. Tanners’ fears that raw material is in short supply have disappeared and it is most likely they will now be very careful with their purchasing and bidding. Let us hope they will be sensible and buy regular smaller chunks to keep sales and shipments moving into the summer instead of trying to hit the bottom and interrupt normal product flow for some weeks.
| 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 |
Soft |
|
|
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 | € 2.00 |
Pressure |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.85 |
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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