German Perspective - 26.06.12
26/06/2012
It was also interesting that we heard quite a number of rumours that one of our colleges was selling cowhides aggressively in the Chinese market at prices that could be considered a decent 5%-7 % below what commonly has been considered to be ‘market level’. Rumours from the market are mostly something not to pay too much attention to, but sometimes it is at least reasonable to consider them. At the moment it could be like the old saying: where there is smoke, there is also fire.
Everyone reads the reports claiming that everything in this market is in good order and weekly sales are always more than enough to allow sellers to lean back, relax, and ignore any potential reasons for downward price risks. Following that logic all hides that are being produced are also being sold shipped, paid for and turned into leather and finished products. Well, as much as this might be the case for the isolated market segments everybody is talking about, we continue our serious scepticism about the validity of it for many in hide production. While a number of producers (packers) might have been reasonably successful in clearing their volumes if they wanted to it is really never discussed if there could be other steps in the pipeline where possibly more material is parked than many would admit.
We see the market as less clear and stable. Many issues have left deep traps in the situation. The debt crisis with the consequences for private banks and their clients, the warm winter, cash-flow problems, a more intense supply and price management policy of most of the larger beef companies around the globe, less price transparency and the attempt to use publications to manage price strategies are just some of the issues. If the target was to reduce the benchmarking function of publications, the strategy has been successful. If the idea was to manage and drive prices higher in the long term and to set price levels instead of letting the market do so, we have still to wait to see if that was successful too.
The biggest mistake in our opinion was that the market and prices have been generalised. While prices for some types of raw materials were totally justified, others were just artificially boosted. We still believe that value remains value and has to be reflected in the quality and the use of the material. If the differences are getting too big, tensions are growing and have to be rebalanced. The market has been looking for a long time for the opportunity to restructure itself. Possibly the slump in skins prices has been the indicator and catalyst for the change of minds recently. In particular those hides that are related to the production of furniture upholstery and bovine garment leathers are being hit and are suffering from slow demand. The decline in skin prices has made new options for cheaper alternatives available.
Business this week has been very sluggish after the reasonable weeks we had before. The selected and preferred hides are still easy and regular sellers at about stable prices and reductions remain marginal. The classical Asian materials, namely cows, are seeing increasing problems of demand and prices.
The US dollar this week has not helped either, so there was very little business and pretty low bids around. The key problem in our region are the abattoir prices, which in the meantime need serious correction after not having adapted to the market prices for almost three months now. Serious margin problems have also prevented sellers from adjusting their asking prices and most of the trades done in the past week were private deals rather than active trades negotiated around the current price levels.
European holidays are starting to have an effect too with almost the whole industry being on holiday from the end of July to the middle or end of August, which leaves only the option of salting and selling in Asia. One week won’t make too much difference on its own, but the outlook for most of the production range is not improving and most will now depend on the needs and behaviour of Asian tanners until some of the EU tanners have to take some decisions in July.
The kill: We are in the period of the lowest beef consumption of the year. With low export interest for beef too there is very little slaughter and the numbers are still declining every week. Annual results for 2011 of beef companies have been released and were not good. With the conditions so far in 2012, their results are certainly not any better so far. For the coming week we expect rather more declines than recovery.
What we expect: It seems, that we are now finally entering the correction and this is actually driven by the medium- and lower-quality hides of dairy cows. How quick and how far this correction will go is anybody’s guess. Heavies and males will remain supported by the low kill as long as tanneries are still open before the holidays; after that, contract tanners may absorb a fair portion of the production. If July abattoir prices adjust, we might have room for the corrections we still consider to be required for various grades.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share this story:
