German Perspective - 27.11.12

27/11/2012

What happened this week: This past week market activity was pretty quiet. After the decent weeks we had been seeing for some time it was a bit strange because there was no indication that demand would slow down that much. It might be related to the shortened week in the US, where the Thanksgiving holiday last Thursday created a long weekend and a short working week. It may be also that many players want to see news about shopping in the US on Black Friday, which usually opens the shopping season for Christmas and could be a good indicator for the mood of the US consumer. Maybe tanners in Asia have finally covered their needs until the Chinese New Year holidays in February.

After some weeks of strong shipping and high volumes leaving for the ports it could be that we are now running into the break related to the holidays and one can already sense that buyers are starting to watch the arrival dates of containers and the way they open letters of credit.

During the week a lot of people discussed the recent situation and the strong performance of the US hide market. While the volume of demand is not so scary, price levels are. For a long time, tanners have been complaining that raw material prices mean they cannot produce leather profitably. But prices still went higher and higher everywhere, with the exception of the EU.

Some people are of the opinion that Asian buyers may have been bringing forward some of the purchases they might normally have made in the first quarter of the new year. However, the key question remains: what is the state of leather demand globally? We don’t need to focus this question on European tanners. Only a handful in the top-range of products and some specialists will be satisfied. Upholstery, automotive and the majority of standard tanners are not seeing any of the demand they would expect for this time of the year.

So, it all depends on Asia and one has still to believe that leather demand is still pretty much based on consumer demand in the emerging markets. The strengthening RMB is compensating for price increases and Chinese tanners may be rather optimistic about demand for 2013. Today purchases of raw material are already for the plans and expectations of the next season. The main drivers in our point of view are still speculation on a reduced hide production next year. We believe that leather demand is not really reflecting the present raw material business and even Chinese tanners admit that at least 40%-50 % of the present business is speculative rather than a reflection of present demand.

In addition we still have the present imbalance of demand for raw and wet blue material. Various causes have increased the production of wet blue in the last year(s), reducing raw material availability for a number of tanneries and inflating the price. So far the gap in production costs allows clients to pay a commercial premium for raw material instead of switching to semi-finished hides as it was intended by the suppliers.

Cheap money and the questions about supply are supporting demand too, although the majority of the leather industry pretends that the time isn’t right yet for any serious increase in prices for finished leather to compensate for the raw material price levels.

Trading this week was extremely light and interest slowed down. The US dollar is also back on its way to the $1.30 mark to the euro and this made calculations and business no easier. So, the positive impression one could have in the past few weeks has faded. So far US price levels are protecting the market from any further correction, but we are now entering the holiday season and a few more slow weeks could increase worries again. Prices were barely steady, but no sales also means no real market prices.

The kill: The seasonal peaks of slaughter are definitely behind us. From the levels seen a few weeks ago we are now slowly coming down, but we are still at normal levels. Weights are still on their way up. Despite all the complaints from the slaughter industry it seems there is enough beef demand to sustain the present levels for some more weeks.

What we expect: We don’t think that this week was representative. However, most budgets, plans, productions and purchase requirements are covered in Europe for the year 2012 and in Asia until the Chinese New Year (February 10, 2013). The majority of books are closed and this is early this year. Everything now is for the new season cycle, when people will start to worry about it and what their decisions are going to be. For the moment this still results in a stable and steady market with falling levels of comfort until the next decisions are taken.

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	€ 2.10	Steady
	30/39,5 kg	36,0/37,0 kg	24/34 kg	31/33 kg	€ 1.85	Steady
	40/+ kg	45,0/48,0 kg	34/+ kg	38/40 kg	€ 1.70	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 - 27.11.12 - leatherbiz: Lea

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German Perspective - 27.11.12