German Perspective - 19.02.13

19/02/2013

What happened this week: With most of Asia being on holiday this past week the market had to focus on the European part of the business. However, considering the tanning side there was also nothing doing, because most of the tanners were also taking a Carnival break for a day or two. Consequently activity was pretty slow. It seems that finally everybody is sitting tight on their hands, with only one exception. The market for heavy males is seeing the traditional chaos that always occurs when the kill falls and productions are running stable. There is a lot of drama around the situation. Low male kills in January and further reductions due to the Carnival week(s) have created the usual bottlenecks in supply and this is once again converting into an explosion in abattoir prices.

While this alone could still be seen as simple market logic of demand and supply, it is hard to understand why it should drag all other categories with it. Well, has the hide business and trade ever been rational and logical? One blows the whistle and everyone runs, without actually knowing why nor where. Anyway, these are the rules of how the game is still played and with more packers becoming involved it is not becoming easier (as they tend to exaggerate even more). The question now is if the automotive business is really so much stronger or if it is just a blip, a sustained level or trend for the months to come. Opinions are different and as usual people take the position that suits them best. Premium manufacturers who had been painting a rosy picture about their export sales have paved the way for what has happened. However, if you remember 2012, you will know that we had a similar situation then, which turned pretty sour after the summer holidays when suddenly a lot of cars were unsold and breaks had to be pulled.

Presently it seems again that good performance is pretty isolated and possibly only the roll-out of some new models has boosted short-term demand for leather seats without any long-term effect. It will take a bit of time to understand if the present situation is just one of these supply mismanagement situations or a real trend for a recovery in demand for high-priced vehicles.

For the rest of the market there is not much to report, simply for the reason of total inactivity. From most tanning centres, visitors report very low inventories. Tanners are monitoring the market every day, asking for prices and offers always in the hope that there will be a sudden bargain around. They might even need to replenish stocks, but knowing how much money they will lose covering today’s existing leather orders they have to and need to wait until the very last moment. Cash-flow is an issue too and we must not forget why so many tanneries work hand-to-mouth. Lack of sufficient finance and the high raw material prices mean that the situation is getting worse by the day. Just a few strong hands and players can afford either to hold material back or to buy volumes to build sufficient stocks to buffer against the market moves. The rest are rattled and shaken by the developments of the market.

Missing customers and the hope of tanners outside the auto industry that the holiday breaks could cause some price-changes kept buyers out of the market. Sellers on the other hand were hardly impressed and believe that a week or so of slow demand and sales will be compensated the following week or the one after. So far they have been right and the first quarter is normally always rather strong. However, while tanners in Europe might still be in need of hides, it’s possible their Asian counterparts are in better shape and could wait it out a bit longer. Anyway, the next weeks will tell us how the Asian are positioned and how they see the market.

Trading and sales this week were just patchy, with some renewal of programmes, but generally just coincidental small sales at steady levels, which can hardly be considered as representative. Sales in Europe were for males while the little interest there was from Asia was for cows.

The kill: The kill this week was again low due to the Carnival week. Horsemeat mixed into ground beef is a big media story and packers are not sure about the influence this will have on beef consumption in the coming weeks. So far the consumer hasn’t reacted much, but one never really knows on such issues. The proportion of bulls in the slaughter mix is still low and we hope for some improvement in number for the weeks to come.

What we expect: Actually we are pretty uncertain. The situation in Europe is clear. The command stick has shifted back to the packers and they will not pass it back soon. In Asia the situation seems to be a bit more split between the bulls pushing prices and the bears waiting for further retreat. Sales have not been too good in the past weeks and if the clients can stay out for a little longer, pressure and fear on the supplier side could return. For next week however, there is hardly any reason to expect a change.

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	€ 2,30	Steady
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 2.00	Steady
Dairy cows	15/24,5 kg	22,5/23,5 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
	30/+ kg	33,5/35,5 kg	27/+ kg	29/31 kg	€ 1.70	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	€ 2.05	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	€ 1.40	Steady
Thirds bulls	30/+ kg	38,0/40,0 kg	24/+ kg	33/36 kg	€ 1.40	Steady

German Perspective - 19.02.13 - leatherbiz: Lea

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German Perspective - 19.02.13