German Perspective—11.12.12
11/12/2012
Market reports from overseas are still trying to paint the whole market situation with a pink hue, talking about strong forward-sold positions and prices climbing incrementally every week. The performance of the market in the US and in Asia has given us the opportunity to escape from the EU’s problems but in the past weeks the performance of the Asian markets has also slowed down. This might be seasonal and temporary, but it is a fact for the moment and it is in conflict with the reports from the US, although not with the sales number that have been published in the past two weeks.
The Christmas season and the Chinese New Year holidays are starting to influence business strongly. Chinese buyers have suddenly slowed down their opening of letters of credit and are using the Chinese New Year holidays now to postpone shipments from a scheduled mid-January arrival to an end-of-February arrival, with the consequences for product flow in the coming weeks when EU tanners will close down. Chinese New Year falls on February 10 in 2013.
Inventory positions of suppliers are, therefore, rising as we near the end of the year and shipments are slowing down. The behaviour of Asian clients does actually not fit into the general market opinion, that many tanneries are short-bought and in desperate need of more raw material at higher prices. If they were really in desperate need of product, they would rush to buy hides that are lower than present market levels. A factor today is certainly also that finance is starting to get tight for some of the Chinese tanners and they are managing inventories as tightly as most of the EU tanners do. Planning gets however more difficult for them as well. Shipping lines are unpredictable these days.
A series of factors such as slow-steaming, ships taken out of service, and product not being accepted have created high uncertainty about arrivals and timing. This makes planning of EU material much more unpredictable than before and origins from which arrivals are easier to predict are being preferred. Considering the price levels we are still at, this could eventually create a pretty decent risk level for contracts out of the EU. With everyone just looking at supply this is again not a popular position, but we still believe it is better to manage the risk than take chances.
The leather business is still said to be okay in China (though no more than okay) and the regions around the world are drifting further apart in their development. In China and the US the latest information indicates a moderate turnaround in the economies while the EU zone is feeling more of the crisis now. While the economy in the south of Europe is still rapidly contracting, strong countries are now beginning to feel the pain and are experiencing a slow-down in their economies. The outlook for 2013 isn’t good either.
Sales and market activity was pretty slow again this week. Sales were rather patchy and only a handful of hides were sold in the end, in particular to Asia and mainly cows. One would have expected to see more interest in bulls and heifers considering the price levels we have reached in the US, but there was not much. Prices booked were about steady while most bids had to be turned down as they are aggressive and $3-$5 below the market. Desperate buyers searching for product normally act differently.
The kill: The kill was lower again. The weather has turned pretty cold and the first snow has arrived. Consequently one would have expected a higher kill with all cattle now off the fields. Christmas is showing its effects, with more demand for better cuts and less demand for commodity products. It’s hard to estimate what the slaughter is going to be for the rest of the year, but we expect further declines. In particular, males seem to be suffering.
What we expect: There is very little to make us believe that market activity will increase between now and Christmas. There might be a tanner or two searching for fresh bull hides who will still need some coverage for January and has waited a bit long for further declines in price. Apart from that it seems that most are covered and the real need for replenishment will start in mid-February. Consequently we don’t expect much activity until the end of the year, with little price variation. Sellers will gamble on less supply in 2013 and most buyers are experiencing losses in producing leather at the moment. This should keep prices in check.
| 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 |
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