German Perspective – 26.03.13
26/03/2013
It was the final week before the big get-together [at the APLF] in Hong Kong. We cannot share the great activity other people report from other parts of the world; there was a patchy amount of interest from Asia and that was rather more at the beginning of the week than towards the end.
In Europe, sales were limited to renewals of long-term contracts of males. Total sales were reasonable but the week was far from impressive. It is a question of how you look at it. If one is happy looking only at the number of hides sold it was ok, but if one would also like to see clients interested and buying, it was a different story. In fact, we are seeing the customer base shrinking week by week and it is a question of taking the one bid instead of choosing from a number.
With rising prices, demand begins to shrink. The low slaughter in February meant concern for sales and shipment was low but, with the kill normalising since the beginning of March, the situation has started to change. In the normal market and production cycle we traditionally see a strong performance in the first quarter; we might have passed this peak and the seasonal decline of the second quarter might have already begun.
Nobody wants market confusion or concerns prior to the fair in Hong Kong. The big buyers in Asia had just advised their customers about the need to increase leather prices due to the strong performance of raw material prices. They would look pretty stupid if prices declined just a few days later and the market tone changed.
So, there is hardly any serious intention of anyone to push prices either way at the moment. However, this doesn't mean much for the future. Many tanneries are complaining that they have reached their limits and cannot afford the raw material prices - independent of good or bad leather demand.
The number of customers pulling out of the market is rising week by week. Looking at the number of clients from all over the world (including China) who have decided recently that they will not go to the Hong Kong leather fair, one would think that their interest to meet suppliers and to discuss business is waning.
We have always been concerned that cash could become the market mover eventually and this situation is not improving. As the number of clients following the market is shrinking, the number of buyers being on time with their financial commitments is declining at the same pace, if not faster. L/Cs are opened at the very last moment and payment reminders have to be sent far more frequently than offers or counters. Most suppliers remain unimpressed – the situation is not as good as one would think.
In the meantime, tanners are increasingly searching for cheaper alternatives or to buy as little and as late as possible. The supply card is still played by the butchers, but the hard facts of global slaughter show there is no decline in the global kill. Regional, yes, specific types, also – but in general the cattle slaughter is still reasonably stable.
The EU debt crisis is also far from being over and money is tight. Sales this week have been limited again and prices were better for bulls but just about steady for cows with a bit of support from the US dollar by mid week. Lighter-weight bulls have not met any interest and tanners have withdrawn their interest at current asking levels.
The kill: We can’t complain about the slaughter numbers at the moment. The upcoming Easter holidays have obviously increased the interest and demand for beef and the kill hasn’t been too bad lately. For the next two weeks, the numbers will be down due to the holidays on Friday and Monday. Weights are about to be normal and the cold weather is keeping the cows far away from the fields.
What we expect: The coming weeks will be the final showdown for the market. The fairs in Hong Kong and Bologna [Lineapelle, April 3 to 5] will finally tell us what tanners think and what they are planning for the next quarter. We are still not overly optimistic, and it might take a while until the butchers and the market finally understand. We don’t see any further upside potential and expect that prices will be frozen in from now until the beginning of April.
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