German perspective – 13.08.13
13/08/2013
As a seller with expensive contracts and stocks to sell the situation is getting increasingly difficult and most have decided not to act proactively (lowering asking prices to stimulate demand), but to try to sell to selected customers in private attempts to move the production without changing asking prices officially. This might be the best and most pragmatic solution.
Circulating offer lists with the real prices of trading plus a discount to attract more buyers would certainly cause a lot of trouble in the market, which is starting to prepare for the first get-together in Shanghai after the summer break (at the All China Leather Exhibition).
It would also not be the best preparation for the trips and visits to customers prior to the show to not to speak about the possible consequences for older and more expensive outstanding contracts. It is a common problem to manage in a weaker market and one can discuss if it was more difficult in the past when the volatility of prices was higher and price movements were triggered more quickly or if the present, more producer-controlled, sliding environment is the better option.
From our point of view it may feel more comfortable when the market moves more slowly, but in the end it doesn't change much. There are not many commodity markets left where the correlation between the balance of physical supply and demand, price and finished product (leather) value is so neatly connected.
So, if the finished product price doesn't justify the raw material price and speculative investments are restricted by cash, space and quality parameters you can postpone but not prevent the fair valuation. It all depends on what somebody considers to be the 'fair valuation' and the expectation of the same. Here the trade is still more run by 'wishful thinking' than facts.
Anyway, this is how we look at things and it might be totally wrong and eventually the butcher will set the valuations in the chain by the price he sets and puts into the budget. Until then we have to deal with the weekly realities and these are still pretty slow.
As we believed at the beginning of the summer, tanners are fundamentally well-covered and can now wait to see what is developing. In Asia those solid tanners still disposing of sufficient finance and business are trying to play it soft. They buy regular material and pay a bit less every week. This is the basis of the market pricing, but not the full reflection of the situation.
Solid tanners are quite happy with the moderate decline plus the discounts they get from their regular suppliers. They have the business and, with the chance to bring market prices in the rest of the year back to profitable levels, everything is fine for them. But is that enough to absorb all the hides produced or has so much fugitive leather demand and money been erased during the times of excessive valuation that hide supply exceeds leather demand and a major correction is required to stimulate leather consumption sufficiently to lift demand to better, sufficient levels? All this will be discussed in the coming weeks, while in the meantime sales forces will try to do their job and to sell at the best or target price.
Trading this week was light again. The weaker USD is causing calculation problems and buyers were not queuing to buy hides at the prices we look for. Low grade and some dairy cows found a home at slightly lower levels. The EU buyers are still on holiday and have made their programmes well into September. Most of the customer base is in no rush to buy and is preferring to wait and see how things are going to develop when global activity resumes after the summer break.
The kill: The kill has recovered a little. However, until the end of August or mid-September numbers will remain on the low side, although the worst should be behind us as far as production and weights are concerned.
What we expect: We have little to add to the above. The market is still driven by politics and while everyone hasn't got a clear picture and the strategies of producers are not set, a real change will not take place. This means that the prices will stay under pressure, but how much this is going to affect the market before the Shanghai fair depends on the volume of the private trades concluded before the show and how this will influence inventory positions of the suppliers and tanners in relation to leather demand.
Share this story:
