German perspective – 14.5.13
14/05/2013
The strong performance the high-end market has shown in the past it was a pretty easy game to push the market higher and even now the fundamental shortage keeps many slaughter houses and suppliers still on the sky-is-the-limit track. However, not all European hides qualify for this game, but they are mixed into the pool and dragged into the price war. Prices at the abattoirs still rise for almost all hides – even against the market trend for those which are not in the focus of the market trend. Consequently we have now reached a junction where the premium categories decouple from the rest of the market and the fundamental shortage of high-quality material and the strong performance of the luxury and automotive sectors leaves tanners hardly any option other than to buy before losing the raw material supply needed.
For the rest of the market, more economic considerations come into play. The low season in Asia and upcoming holidays in Europe are leaving their tracks in the leather business and in the order books. Medium and low-grade hides are also in much better supply and more alternatives can be found – not to speak about the options to substitute leather in production. If that is not enough then financial reasons are coming into play and in the meantime it hits more and more people that payments are not coming in timely or L/Cs are opened with a certain delay.
The sharp rises of raw material prices have left their impacts in the supply chain and traders and butchers may have taken benefit from the firm market but tanneries have digested the constant rise of raw material prices over the past season. With about six to eight weeks to go until we reach the high season of holidays in Europe, we are getting nearer to understanding more about the trend of the global economy and the potential for leather prices in the second half of the year. Higher leather prices are needed to compensate for the present price levels and to support them for the rest of the year. We find it increasingly interesting that everyone speaks about the raw material markets and supply and while there is hardly anything said about the leather business in general. Everyone is just focusing on the automotive premium section and the luxury leather business. The standard markets are hardly mentioned in the media nor is anyone really bothering about them. It is enough to believe that the emerging markets will continue to grow more as the old economies suffer. And indeed it is hard to get a clear picture about the entire demand for leather for the second half of the year.
This week was again generally quiet which was mostly owed to a holiday on Thursday in many countries in Europe. China is taking a wait-and-see position since the up-trend in the US is broken and prices are declining. Traders try still quickly to liquidate stocks which are possibly generating some profits before they turn sour and packers try to stem as much as they can against the turn in the market. Sales were again pretty limited, mainly for price reasons. Buyers bid lower from overseas and in Europe they don't want to move to the levels needed to cover for the recent price rises at the abattoirs. So, it was a mixed bag and we think it fair to say that on average, prices did not move much either side.
The kill: The kill was again reduced by the holiday on Thursday. Beef consumption at this time of the year is not brilliant and neither is export. Numbers and weights are low, as usual in spring, and there is no change in sight.
What we expect: It seems it will still take some time until a clear direction is established. In Germany we face a special situation as explained above and this prevents a clear trend. For the hides from our region it will be difficult. The little firmer USD is the only relief we can find. If the US market doesn't recover soon it will be extremely difficult to escape from the new price relations globally and we should follow.
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