German Perspective - 04.06.13
04/06/2013
The key problem for the European hide market is the fact that revenues in Asia and prices in Europe are drifting further apart and the general price level is dominated by the high end and not by the standard grades. Consequently the price gap is opening ever-wider and this is making standard EU hides too expensive in international terms. This doesn’t seem to be acknowledged by some EU processors or by packers, and there are differing opinions about where the market is heading and at what price level for the majority of EU hides.
Is the premium market the benchmark and indicator for price levels or is it the global market with all the various options of substitution? Well, we think that prices and valuations are still made within a quality group with the bulk producers who are in a position to do global sourcing. It might take a while until the big ships change course, but it will happen in the end. However, there are still enough players in the local market here who believe that the price level in the EU can decouple and raw material demand and prices will rebound with increasing demand from Asia in June and July.
As a first indicator for the demand to be expected in the coming months, there was the Guangzhou Fair, which took place last week. There is a major discrepancy in the reports about the results. Some reports are speaking about good attendance and positive results and impressions. Most of our Chinese contacts are less enthusiastic and report a rather dull impression of the activity at the fair. It is again obvious that the information is pretty much influenced by the interest of the source. Between the large buyers and the majority of suppliers remains the consensus, that officially the market should not fall too fast and too deep. Indeed, it would cause plenty of the usual problems apart from the simple one that it could have a negative impact on leather prices.
The general idea is, however, that tanners would like to phase their high-price contracts out slowly while suppliers, by nature, do not like to see their selling prices fall. However, all this requires tanners to buy sufficient quantities and the numbers are simply not large enough.
Although US reports do not get tired of reporting good sales and forward positions, the official number speak a different language. Since some of the reports are taken as a reference in the leather pipeline, it might make sense to prevent extremes of excitement or depression, but in the end a certain vicinity to the reality is needed. If hopes and interest are, long-term, too far away from the reality the market reactions get far more pronounced and uncontrollable. Consequently we need a major round of purchasing soon to justify what the market and the supply side are presenting.
Asian tanners will soon have to show their cards regarding their real needs for raw material. Their production cycle starts in July or August and if leather orders are decent and inventories are low they will have to come back soon for larger numbers of hides. For the moment the demand seems to be just good enough for the high end and the low end, which is to say cheaper hides. Lower-price material from Africa, Latin America and so on is still finding enough buyers, and prices are steady to firm.
Sales this week were again rather coincidental and mostly to EU customers. Heavy high-quality males are still cleaning up well and are generally taken the moment they are offered. Low grades too. But the rest struggles. In particular, demand for dairy cows is fading and it is unclear where the actual market level is. Italy is bidding down and China too with limited volumes traded in the end because ideas are generally too far apart. Prices are stable for males or even a fraction higher, while prices for dairy cows are sliding with a very limited number of trades.
The kill: Nothing really exciting. The kill is what one would expect these days. Fortunately the weather in the north is better than in the south, were constant rain is causing floods. Weights are falling rapidly and the number of males remains on the low side.
What we expect: We are waiting for the purchasing round from Asia and for the shake-out in the market to get the various prices back into a healthy relation. It seems that sellers still have patience and will hold prices up in the expectation of a round of inventory replenishment soon. We will watch, and keep an eye on the money side.
| 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 |
Pressure |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 2.30 |
Pressure |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 2.00 |
Pressure |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1.90 |
Pressure |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2.40 |
Pressure |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 2.30 |
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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