German Perspective - 30.07.13
30/07/2013
A slowing economy in China and other markets, the end of the easy money policy on the horizon and consumers who are no longer willing to shop for the sake of shopping amount to a situation that is starting to worry many people inside and out of the leather business. For some time now, some people have been picking up pieces of positive news and making them into a general market perspective, but all efforts to paint the market situation rosy have not been successful. Slowly, more people are realising that the leather industry has for some time been shifting to cheaper raw material, accepting the resistance of the brands and retailers to spend more for the product and as a response to shrinking or negative margins. Consequently we have to accept, that cheaper hides are gaining market share while the expensive end of the range is losing out, with the exception of the luxury level.
Nobody can deny, that the volume of sales for the medium and higher end have been under-performing in the second quarter, while the medium-lower end of the price range has been performing better than the market. This has led to inventories that have, slowly, but constantly, started to pile up. Optimists consider this to be the normal summer doldrums, but others are beginning to believe that this could be one of the fundamental turnarounds the market sometimes faces.
Some may not look at the long-term price charts and have forgotten that prices today are still not far from the all-time highs; even a decline of 10% or 20% would not make them cheap in the long-term perspective. We have always believed, and we still believe, in internal value analysis and this means that hide prices valued by the total of their production return, with splits, trimmings and leather, must reflect their real value in the long term. Some things went in favour of the hide prices in the past cycle, such as higher split credits or better yields and technological influences, but leather price never moved to the extent that the price for certain origins, including ours, was justified, and it doesn’t seem that it will be in the coming months.
So, solutions had to be found and they seem to be found in cheaper raw material and less leather consumed in the products. Our market is seldom logical or rational and all the above applied already six month ago. Sellers’ policy to limit supply to protect and increase prices has worked pretty well, so far. Now we are at the critical junction and are about to learn what to expect from the next cycle. Within the next six or eight weeks we will know if history is repeating itself. For a number of years the market has had to surrender after the summer and return to fair valuations for a while. Let’s see what the beef industry decides this time.
This week the holiday season went into full swing in Europe. Some final sales were generated, but they are all for delivery after the holidays and that means basically that buyers will not buy more when they are on holiday and they are covered for the first weeks after their vacation. This doesn’t deliver too much hope for sales in Europe until mid-September. Asia is very selective in its buying. A round of sales for dairy cows, but with the weaker US dollar it’s not much fun there either and we understand that some of our colleagues have pulled their pants down, which has not made our negotiations easier. The prices still cover the cost of the hides at the abattoirs but further corrections are necessary next month. Prices for heavy, quality hides were about steady while the rest brought declining revenues in euros. The total number was boosted due to the pre-holiday effect, but generally we are not impressed considering the weeks to come.
The kill: We have seen the hottest days of the year and this was reflected in lower kills. Although school in the North starts again next week the vast majority of the country is on holiday. So, the kill will stay low for August too.
What we expect: There is no indication that tanners are going to support the market in the near future. Sellers are trying to hold the market as steady as they can, even at the price of selling to ‘prime’ customers well under the official price list. To make sure that shipments are not interrupted is the main target at the moment. So, we might not see much official price variation until the end of August, but unofficially it will not be easy to hold prices.
| 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 | € n.q. |
|
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € n.q. |
||
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ n.q. |
|
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ n.q. |
|
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ n.q. |
||
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € n.q. |
|
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € n.q. |
||
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € n.q. |
||
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € n.q. |
|
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € n.q. |
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