German Perspective - 19.06.12
19/06/2012
If the Greek general election on June 17 ends with an anti-euro government (which looks unlikely for now) and central banks are already preparing, emergency actions on the markets will follow.
The hide market remains still pretty unmoved and the majority of suppliers consider that any problem in the markets has no influence on business. Well, this opinion would change quickly if for whatever reason the cash flow in some countries is interrupted as a result of the election in Greece. This would then certainly touch the leather industry. Anyway, let us hope for the best, that the Greek election will not make current problems, which are already bad enough, any worse.
Not all tanners are pessimistic and this kept them in the market this past week regardless of the potential risks out there. They are aggressively bidding and trying to find bargains and this always means somebody has to compromise on price. The financial markets too are obviously not too concerned about the future of the euro, allowing the currency to recover levels of $1.26 before the June 17 election. Looking at all this it seems that there is either some kind of fatalism or Europe is not considered to have any serious impact on the global economy any more. One way or the other the markets appreciate that big money is prepared to rescue the European idea, no matter what happens and that means more money to play with.
Meanwhile Asian producers and buyers are trying to find cover for their tanneries for August and September and the situation in Asia seems to be pretty much two-fold. On one side there are factories that hold orders from regular brands or see their domestic sales stable after the summer break. This seems to apply to all except those producing leather for furniture upholstery. They have to cover their raw material needs and can hardly wait any longer. So, they continue to buy at the cheapest price possible. On the other hand you have many others who are short of orders, short of finance or both.
For the majority of the tanners raw material prices are too high, leather prices too low, or both. What can also clearly be seen is that payment morals (and therefore cash-flow) are eroding quickly. An increasing number of tanners around the globe are starting to feel the pain and are consequently careful about what and how much they are buying. This may just end in natural selection, growth and survival of the fittest, but there is a long way to go until things are back in balance.
For the time being we still see automotive leather growing and raw material demand with it, while the business in all other sectors is stuttering with order declines after the warm winter and the grim economic outlook for all other tanning sectors. Upholstery tanners are trying to downgrade raw material qualities and to escape into cheaper leather while a part of the shoe industry is also still trying to use more splits, reduce leather consumption and use alternative materials to reduce risk in pricing.
After the summer break we will know better how consumption is going to react and if the emerging markets will continue to compensate for weaknesses in Europe and possibly also in the US.
Although the general conditions this past week were rather questionable and difficult, trading activity was better than one would have expected. It seems that some tanners cannot wait any longer to replenish and are finding EU hides an attractive option. In particular dairy cows and oxen look more attractive than their counterparts in the US, so a number of bids came to light. Some were very ambitious and unworkable, but others have made suppliers think that there may not be better money ahead and they decided to take what was reasonable and ended up with an acceptable sales volume to Asia this past week. All the business was booked in the first half of the week and towards the end interest dried up almost completely; the weaker US dollar at the end of the week did not help.
The kill: The kill is really poor now. Slaughter companies complain that they can’t get enough cattle and what they get is too expensive. Just some big groups still kill regular numbers, mainly to feed ground beef demand. Hide weights are low and cattle quality is also not really a pleasure at the moment. So, if one didn’t know which month it is, it could only be June or July looking at the conditions.
What we expect: We have to see what consequences the Greek election will have. In the end it won’t change much fundamentally, but it could change the entire EU policy. Mainstream opinion is to pump more money into the system. Well this may help short term, but it doesn’t change the fundamentals. More money will support the hide market, but whether it will sell more cars, shoes and sofas and people can re-pay their consumer credit debt is another story. Pumping money is just increasing the final bill that has to be paid eventually.
| 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 | € 1.70 |
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 |
€ 1.60 |
Softer |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1.55 |
Softer |
|
| 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 | € 1.90 |
Pressure |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.75 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1.35 |
Soft |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.40 |
Steady |
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