German Perspective - 10.07.12

10/07/2012

What happened this week: The market is in summer mode now, with low kill and subdued business. European tanners seem to be done until after the summer holidays except for general renewals of fresh hide contracts and a few little gaps still to be be filled. From Asia we see just hand to mouth deals, although with longer shipping dates requested. This makes us believe that in Asia too a handful of tanneries have waited as long as they could and are just buying as little as they must to feed production at the lowest level possible.

This is a reflection of the situation on both sides, supply and demand. Some ran stocks as they were convinced that the market would continue the strong performance of the first quarter, while others were more prudent and kept inventory at the lowest possible level, selling their production week by week and buying only what was needed to keep production running. On the supply side, producers were more optimistic than traders or processors and on the tanning side the upholstery tanners were more prudent than those making shoe and automotive leather. In between there are still some of the big players in China that are involved in tanning and wholesale and they are holding large inventory that one day will need to be placed on the market.

The large unknown at the moment is the real situation regarding leather demand. Is the rise in the consumption of automotive leather compensating for a decline in upholstery leather? Is rising wealth and purchasing power in the fastest developing economies compensating for the decline in the old economies? Statistically, we know almost everything about leather consumption in the western world, while reliable data for the emerging markets can hardly be obtained. That leaves the answer about the real consumption of leather in the world at the present moment unanswered. We know however that there is a moderate decline of bovine raw material supply, but nothing that is so substantial that it would change the general balance of supply and demand.

That supply is not the key factor can already be seen in the market for skins, where supply is down, but falling demand has killed the market in the end. The present market situation is still representative of the last leather season and the trend for the rest of the year will now solely depend on the budgets and expectations of global retail. This will really be seen and unveiled after the summer break, when production picks up again. A lot points in the direction of total leather consumption suffering a moderate decline, unless the price for leather is reduced.

For the moment the market is trying to escape to lower quality and cheaper raw materials while the medium-to-higher end faces most of the headwinds at the moment. The margin problem forces tanners into lower priced raw material, even risking quality eventually.

Trading this week was again pretty light. There is always some interest to choose from and some bids are actually good enough to be negotiated. However, the volume is small and we cannot trace any buyers who would take hides in volume unless the prices are seriously discounted. Buyers are being far more picky about quality and the seller’s reputation and are selecting carefully what and where they purchase. Interest was mainly for dairy cows and lower grades while males that are not suitable for the automotive industry were struggling to find interest. Price for the hides sold were steady to a fraction lower.

The kill: The kill is now at the lowest level of the year and we assume this will last for several more weeks. Weights are light so the summer is not really the hide processor’s delight, as always.

What we expect: Actually, very little. Holiday mode, little activity and we think prices will continue their slow and moderate slide. The risks are outpacing the opportunities by quite a bit at the moment.

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	€ 1.90	Softer
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 1.55	Soft
	30/+ kg	33,5/35,5 kg	27/+ kg	29/31 kg	€ 1.50	Soft
Bulls	25/29,5 kg	27,5/28,5 kg	22/ 27 kg	25/26 kg	€ 2.15	Pressure
	30/39,5 kg	36,0/37,0 kg	24/34 kg	31/33 kg	€ 1.80	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

German Perspective - 10.07.12 - leatherbiz: Lea

Intelligence

German Perspective - 10.07.12