German Perspective - 02.10.12

02/10/2012

What happened this week: The situation is becoming more mysterious every day. Reports differ more than ever. Market activity was pretty slow this week and interest for hides was sparse. This is in contradiction to the reports one gets from mainly overseas suppliers who are still claiming active sales and better prices. Well, European offer lists may not look too attractive owing to the currency situation, but there are a number hide types that are still not overly priced. However, there is no run on these although one should expect that in view of the low kill and the price quotes in the official lists from other origins that are circulating the market at present.

So, the confusion continues as well as the conflicting information one gets from the tanning business. While in Europe most people (except a few luxury producers) are pretty conservative in their opinion about the market and the leather business, the reports from Asia are pretty mixed. There is something for everybody and it seems to be wrong to generalise. The question is how to achieve a balance. Can the successful companies compensate for those who are reporting serious declines in the their order books, production and sales?

With a supply-driven market and brilliantly managed sales and prices by some of the large sources for raw material around the globe, the market has been kept in tight control and small ranges for quite a long time. This can only be justified if a market is in balance, otherwise somebody has to take some weight from one side of the scale to hold the balance. This remains the wild card in the analysis and can only be answered by those who are holding inventory in their hands.

The fact is that although most tanneries agree that they find hide prices too expensive, hardly any of them is voting for a sharp, sudden and extended correction. This has kept suppliers pretty comfortable in their risk analysis and the market steady for a long time. However, in private most players are suggesting that the time for a new trading range could be lurking beneath the surface already. It is pretty obvious that tanners expect the level to be lower while packers are convinced it can only be higher.

Looking at the general outlook one finds it increasingly difficult to join the optimists with most of the economical indicators not looking positive; the last straw is an expected stimulus programme in China to boost local consumption and the economy in general. In all other parts of the world the money stimulus has already been triggered with pretty limited success so far. For this week it meant basically another round of wait-and-see policy in Asia. Most people there seem to be in holiday mood already and rather too busy with logistics and administration to care about hide purchasing. Officially there is only a one week holiday for the mid-autumn festival, but we have heard of many who are taking a bit more time off. The week after, many are travelling to Italy to visit the Lineapelle fair in Bologna, which might be more a trigger than the Shanghai fair was.

By then or by the end of October at the latest, most producers should have a clear picture of their order books for the last quarter and will decide then if the supply card can be played again or if demand is going to be the determining indicator for the rest of the year. Under these circumstances it did not come as a surprise that trading and demand this week was very limited. Apart from a small handful of bids and a little helping hand from the currency market to lock those in, we would call activity non-existent from Monday to Friday. Whether this is down to the holidays and people waiting to meet in Bologna we fail to understand yet. With the limited sales, prices can hardly be representative. In general we would call the levels weak-to-steady.

The kill: The kill was a touch better this week, but the mix is the issue. There was a sharp drop in males with cows totally dominating production. Packers are complaining about negative margins and the problems in selling higher-quality beef cuts because consumers are unwilling or unable to pay for quality beef.

What we expect: Next week is likely also to be a quiet one. Most Asian buyers will be on holiday and it doesn’t seem as though they will be so desperate for hides that they will chase them during their vacation. In Europe too wee see no improvement in demand in the coming week, so that almost everything points to another pretty quiet week. It is unlikely that this will lead to any price variation because sellers seem still to be unwilling to lower asking levels. It will take more to change opinions.

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	€ 2.20	Weakish
	30/39,5 kg	36,0/37,0 kg	24/34 kg	31/33 kg	€ 2.10	Weakish
	40/+ kg	45,0/48,0 kg	34/+ kg	38/40 kg	€ 1.90	Weakish
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 - 02.10.12 - leatherbiz: Lea

Intelligence

German Perspective - 02.10.12