German Perspective - 21.08.12

21/08/2012

What happened this week: It was another of these typical weeks in August. It is pretty quiet and most activity is related to shipments and administration. However, the German market was still a bit shaken by the question of how the import situation for German hides into China will be handled in the longer run. For the moment most of the trade has quickly returned to something like business-as-usual but the final settlement of the issue is still open. When these matters are delayed at administrative levels one never knows how and when it is going to end.

Despite the holiday period the first companies are now slowly returning and a number of our clients in northern Europe are back to work already. Many of them are hoping to see some easing of prices, but they realised quickly that most packers had sold their summer production already until the end of August and that made it hardly possible to convince the rest to sell hides any cheaper. Those who had to replenish their inventories had to bite the bullet and pay steady money on the basis of the prices seen in July. However, the mood is starting to change a little bit. The worries of a slowdown in the main economies are starting to rise and with them uncertainty about the volume of orders in the comings months. Also the weather has become a topic of discussion. The serious droughts and the sharply rising prices for corn are starting to become a worry.

While on one side it could increase the kill with farmers no longer in a position to feed their cattle, food prices would cut into the budgets of families and reduce purchasing power for other consumer products. Even the automotive industry, which was still fully optimistic before the summer started due to their strong export performance, has begun to send the first and timid signals of concerns that the sales could slow down and exports not reach target levels.

We are right in the middle of the summer and there is still a lot of guessing and talking, but there are quite a number of negative issues that are weighing on the markets. We see in particular the debt crisis and the consequences of the possible rise in food prices and the high levels of oil prices due to the tensions in the Middle East as the biggest threats to the leather business. However, we should not ignore the finance problems of many companies as can be seen in isolated cases in almost all markets. Even in China selected buyers are not opening their letters of credit and are taking their shipments at the same speed as they did in the first half of the year. Cash flow is for many today an increasing issue. While some are blaming their clients for paying slowly, others are overstocked and are missing cash flow from sufficient sales.

The market just strolls along. There is still no major trigger for shaking the market and despite raw material price levels probably being too high for many tanners, most players, buyers and sellers, will prefer no major market movements until the picture becomes clearer in late September when there is more information available about retail sales and orders, and the results of the trips to Asia are digested. Sales this week were satisfactory for the time of the year. In particular some purchases of dairy cows from China confirmed the confidence of buyers that the import of German hides will remain open. In Europe we saw the usual sales for male hides, which continues to clean up the lower summer production.

The kill: The kill is not producing any major news. The numbers are still low and the weights too, with any increase still pretty limited. However, we are quite confident, that in the coming weeks the levels will slightly improve, although it should not challenge the balance of supply and demand.

What we expect: It seems, that the market is now waiting until the impressions from the Asian situation are collected after the All China Leather Exhibition in Shanghai (September 4-6). Only surprising and sudden news or incidents could make people change their short-term views on pricing. Consequently we expect only a minor fluctuation in prices.

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	€ 1.80	Steady
Dairy cows	15/24,5 kg	22,5/23,5 kg	13/22 kg	20/21 kg	€ 2.00	Steady
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 1.75	Steady
	30/+ kg	33,5/35,5 kg	27/+ kg	29/31 kg	€ 1.55	Steady
Bulls	25/29,5 kg	27,5/28,5 kg	22/ 27 kg	25/26 kg	€ 2.15	Steady
	30/39,5 kg	36,0/37,0 kg	24/34 kg	31/33 kg	€ 1.95	Steady
	40/+ kg	45,0/48,0 kg	34/+ kg	38/40 kg	€ 1.80	Steady
Thirds	15/+ kg	25,0/27,5 kg	13/+ kg	24/26 kg	€ 1.35	Steady
Thirds bulls	30/+ kg	38,0/40,0 kg	24/+ kg	33/36 kg	€ 1.40	Steady

German Perspective - 21.08.12 - leatherbiz: Lea

Intelligence

German Perspective - 21.08.12