German Perspective - 11.09.12

11/09/2012

What happened this week: The long-awaited All China Leather Exhibition in Shanghai is over and for most it was a relief that nothing extraordinary happened and in the end turned out to be business as as usual. Attendance was a bit mixed. The first day was actually very busy and from the opening until the evening the aisles were full; the number of people was a surprise. The second day was busy in the morning, but from midday the number of visitors declined substantially. The third day was the usual slow and relaxed event with fewer people, but still active movement and people were still busy in discussions until the end of the show. The usual early moves to start packing up were not seen before the doors were officially closed. So in the end everyone was impressed by the professional and active climate of the event.

As far as business was concerned we would also call it normal. There was neither a ‘we are sold out and prices are going up’ attitude nor a ‘we are not buying anything we are waiting’ one. We believe that there was enough business done to make sure no one returned home totally disappointed. The large hide suppliers of the world made it clear that they are not willing to stimulate demand with large price rebates and will not be forced to do so. So tanners who were in need of product had to accept that the range of negotiations is narrow at the moment and that they will have to pay market rates, or close to them, for the material they need.

However, the general discussions made it very clear that most tanners are losing money, expect a decline in orders for finished leather or are already experiencing a decline, and are just buying to keep their drums rolling, not because they are happy or optimistic about their businesses. It was also obvious was also that there is still not much raw material pressing on the market and the market is beamhouse-driven, while all over good stocks of wet blue are available are not proving easy to place.

The owners of the stock are playing the supply card again and expect the kill to be way down well into 2013 and see inventory as a security buffer. We tend rather to believe that the wet blue is just too expensive or simply not the selections the market can digest at the moment. This leads to a fundamental problem that remained unresolved at the end of the show. Leather prices and raw material costs do not match and with the general outlook for the global economy and consumer consumption as it is we can find hardly any reasons why leather prices should rise to get calculations right.

The hide market isn’t an anticipation of the future any more; it is just a reflection of the present in combination with the rising price control by meat producers. The control of supply determines the prices set. It will be quite interesting if the hide producers of this world manage the markets by managing the raw material supply flow into the industry and taking over the trade function of the past. In good times it will be easy, in bad times their warehouse space and financial resources will dictate the trend. In the meantime the tanners of the world have to accept the fact that it is not their business that is commanding the markets any more and the only solution is either to produce less leather, which is not easy when you look at your hungry drums and eager workforce every morning when you arrive to the factory. Even a sudden uptick in leather demand would not solve this problem at the moment, only a fair rise of leather prices would really change the fundamentals.

Trading was decent during the show. Sales were mainly done with the regular clients on a rather friendly basis and prices were at asking levels in US dollars, which is not a great help considering the dollar has lost almost 4% of its value in the past month. Interest was in better quality hides while for the rest we could not trace anything special. More dairy cows are being used for shoe upper, simply for price reasons. The same applies to low grades.

The kill: The kill is now getting constantly better. The summer is into its last lap and slaughter is starting to raise. There is nothing unusual in this; it’s just the normal seasonal pattern.

What we expect: In the next week most will try to convert the trip to Asia at the start of September into negotiations with the abattoirs. Discussions will not be easy because the fundamental problem of finding a way for everyone to be profitable remains. Strategy is ruling the market. Since enough hides are moving for the moment we don’t expect large changes in prices. We are also still very concerned about cash-flow problems in the industry.

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	€ 2.00	Steady
	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	€ 1.35	Steady
Thirds bulls	30/+ kg	38,0/40,0 kg	24/+ kg	33/36 kg	€ 1.40	Steady

German Perspective - 11.09.12 - leatherbiz: Lea

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German Perspective - 11.09.12