German Perspective - 07.05.13
07/05/2013
What happened this week: This past week can be described as a non-event. Longer holidays in Asia and a day off in the middle of the week in many other countries gave many people the chance for a break. In Asia many tanners and agents took almost a week off and this time they were really on holiday, because there was hardly any mail and communication. This hardly came as a surprise. The upward trend is broken, most customers seem to be decently covered and so a holiday week came at exactly the right time to check and analyse the market situation.
As always, everyone has an argument to support their particular position. The bulls believe that leather business is still strong and supply short, with tanners’ inventories low and it is only a question of when the buying frenzy will start again. The bears point to the fact that sales have slowed down since mid-April, They know tanners who have good inventories and have serious cash-flow problems going into the low season of leather production and believe that hide prices have gone too far to be reflected in the present leather price structure.
Both sides feel they have the stronger arguments and this has led to the present stalemate in the market. The facts, however, speak for themselves. Prices are sliding in most markets and for the majority of the products. Finance is becoming more of an issue day by day and payments and letters of credit from Asia are coming in increasingly slowly.
Weekly sales are already lacking the dynamic to justify a strong market for average-quality hides, which have been booming in price for such a long time. The outstanding quality of some raw materials and origins, which are used for the luxury segment, can still achieve positive margins along the supply chain, independent of how expensive they have become. But the price of average-quality hides, such as central European hides, has gone so high that it’s hard to see where they can fit in any more. Presently we see a strong performance of low-quality and economical hides. There were indications of this at Lineapelle in Bologna at the start of April when a lot of leather buyers indicated that they were willing to consider lower qualities, but not higher prices. Also China reports strong interest for lower price origins like Africa and Central America.
The good news is that there might be a bit of slow-down in leather demand and production, but there is no indication of a sharp decline in the leather business and so we might have to expect a correction in prices just to get back into line with fair valuations and the prices obtainable in the market for finished leather. The only serious threat to a sharp correction is the financial situation, which can always become the trigger for surprises.
It is always very difficult to analyse in a market like this what the real financial problems are and what constitutes ‘just pretending’ or blaming the banks. Most likely we will know more before mid-summer. Turnover in many tanneries will now start to decline and hides are still expensive. Under these conditions we will know quickly how much cash individual players have.
Business activity was pretty quiet this week. The market in Europe is still dominated by the demand for calf and vealskins and the heavy and top-end materials. They still set the pace for the whole market and make it so difficult to adjust. However, the writing is on the wall and a few hands have already decided to focus on the sales of the standard hides and not to wait for the better. With limited demand, the first sales with discounts have been noted for cows and medium-weight hides. We have seen little interest from our customer base and just a handful of sales were concluded with small quantities for the sake of the relationships with regular buyers. Interest was mainly for low grades and prices were actually a fraction down, because none of the overseas customers we like to deal with were willing to accept steady money and the weakness of the US dollar did not help either.
The kill: Last week we had a holiday on Wednesday, which was no good for slaughter. Farmers are also busy in the fields after the long and cold winter and don’t care too much about cattle at the moment. So, the kill was fairly low. This coming week we will see the holiday on Thursday for the Ascension, which will not boost numbers at all. The season is starting to change and the weights are falling.
What we expect: We have very little to add to last week’s statement. Sellers and packers are not yet willing to surrender and so prices are moving only slightly. Activity in Asia this coming week will give a better picture of how much potential for correction there is in the market at the moment. We would prefer to have a quick and short reaction to put the market in line again rather than wrestling back and forth.
| 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 | € 2,40 |
Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 2.20 |
Steady |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 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 |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1.90 |
Steady |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2.40 |
Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 2.20 |
Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 2.00 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1.60 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.60 |
Steady |
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