German perspective - 18.06.13 - leatherbiz: Lea Leatherbiz

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German perspective - 18.06.13

18/06/2013
What happened this week: We don’t know if everyone will agree, but it seems 2013 has been quite a difficult year so far. Leather business has been possible in volumes similar to the previous year, but with raw material prices being on average 20% higher than a year ago and no real correction of prices, tanners have not had the chance to average their raw material cost down and the inventory of 'cheaper' hides has been used up. Leather prices haven't compensated for the higher raw material cost and so most of the industry is trying to figure out how they will handle business in the second half of this year. Many tanneries will have to negotiate their leather contracts in the coming months. For the moment, many in Europe are happy to have a break and contemplate their summer holidays.

In the leather industry the situation remains as mixed as it has been for quite some time. While the automotive tanners in Europe and high-quality specialists still enjoy regular or even good order books, the remaining producers are far less pleased. With the lower kill and in particular the low season for heavy hides, the market conflict grows.

The small part of the leather business that is running is struggling to get the supply needed and many cannot wait for the summer break of production in the hope that the soaking reduction will ease some of the supply squeeze for these types of hides. This situation is now commanding the entire European market and leading to overprized hides across the board.
The weaker US dollar has added to the problem that hides from the EU are presently not competitive in the market. The fundamental shortage of heavy and good-quality hides continues to inflate abattoir prices and in most EU countries, prices at the slaughterhouse as a result of the fierce competition for a small part of the production command the entire price structure. The butchers have been able (or the buyers have been unable) to handle the prices levels according to the market realities. This has led to the situation that most abattoir prices have totally decoupled from the international price realities.

In addition, market politics are commanding the trade rather than the commercial and economical realities and it seems that a lot of the activities and prices around the globe are more a result of 'strategies' than the reflection of the market activity and reality of physical supply and demand or commercial calculations.

With the change of the season, the summer break and the problems of financing in many places it seems that the market is not on solid ground and needs to get some answers regarding demand and pricing over the coming months to get to a safe footing again. Until then, most of the players might continue to see just what they want to see for their market evaluation. The cost averaging concept, that raw material prices fluctuate and there are always periods during the season, did not work well last season and tanners not protected by index-price arrangements had a tough time with the slaughter industry managing prices by supply management, reducing volatility. If one believes this will work in the future it means new calculations and pricing concepts have to be discussed with leather buyers.

Finally, trading was very quiet this week. Most tanneries are sitting and watching and testing the waters to see if there are any bargains or weakness somewhere or with somebody. However, hardly anybody is in the position to discount and or sell too much forward at or under the present price levels. Hand-to-mouth is the motto on both sides of the table, which keeps prices pretty stable with or without sales.

The kill: The kill continues to be low. The floods, the season, poor export levels and low margins in the beef industry are keeping the slaughter numbers pretty low and there is no change in sight. Weights continue to be low, too.

What we expect: The market remains paralysed by politics and misses the fundamental trigger for any change. The high-end sector does not need to be discussed, but the rest the summer will tell us if leather prices and demand will adjust to the raw material market or the raw material market will adjust to the leather market. We still believe that external factors will make the market move eventually and this could be general economic issues (commodity markets) or financial problems in the industry itself. For the short term there is, however, very little change in sight. Pressure persists on all export grades due to the weaker USD.



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

€ 1.95

Pressure

30/+ kg

33,5/35,5 kg

27/+ kg

29/31 kg

€ 1.85

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 € 1.65
 Steady
Thirds bulls 30/+ kg 38,0/40,0 kg 24/+ kg 33/36 kg € 1.65
 Steady






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