US perspective –15.8.13
20/08/2013
REPORT ADVISORY: The Maxfield Report will take a publishing break starting from August 16 through August 22. Please note, this is one of two one-week publishing breaks we observe each year.
THE COMMENTARY
We continue to have mixed reports from members of the big packer trade. When speaking with both packers and traders we are aware of some who shared that they had no interest on big packer hides, while we have heard from others who reported to have moderate interest; however, buyers are certainly not bashful in their price ideas.
Overall, the sentiment of the trade is that this week does not appear to be as busy as last week (which by the way, was far from being considered a busy week of trading). Meanwhile, the consensus of the trade is that it is highly unlikely that although prices appear as if they are lower again this week, it is doubtful that packers will liquidate a week’s worth of production.
In the meantime, we continue to hear plenty of rumours coming out of Asia accusing various packers as well as traders of accepting trading levels that are well below the last established trading levels. Rumours last night insist that HTS are trading freely at levels of $95 delivered, while BBS have supposedly sold at levels of $99-$100 delivered and HNS a dollar or two higher. Overall, it does not appear as if there have been substantial volumes sold at these levels; however, usually when product is sold at levels below the market, it is difficult to get accurate information.
We were able to round up quite a bit of sales today; however, we advise our readers that we are not of the opinion that there have been a substantial number of hides exchanging hands, as there are simply too many people laying claims to have a lacklustre week of interest. Sales report today include multiple sales on BBS at $94, while sales of jumbos reflect levels of $102, while we have a couple of sales on BS with regular weight material at $90, while sales of jumbos reflect levels of $97. Other trading is calling sales of HBH in a range of $77-$79.50, while we have packers laying claims to selling HNDC at $82 and HNH at $80.50. We also have sales on HNS registered at $96, while sales of Jumbos check in at $103; while the only other trading is a couple is reports on regular weight packer HTS reflecting levels of $90-$90.50.
THE LOOK AHEAD
We see prices of big packer hides end the week lower than where they started for the seventh consecutive week. What is interesting is that the decline once it started was rather subtle at first; however, over the course of the past couple of weeks it certainly appears as if the decline in prices has picked up a considerable amount of speed.
In the meantime, there is no shortage of opinions by various pundits as to what has caused this decline in prices, and we have to admit we have heard some very interesting dissertations. However, at the end of the day, we remain of the opinion that the answer is simple: sales and shipments have not been keeping pace with the slaughter dating back to April of this year and producers, slowly but surely, are falling under the weight of their own inventory.
At the end of day, we have been hearing for months complaints by the major brands that leather prices were too high and we heard the claims that they would be downgrading the leather they would use this season or worse yet, eliminate it all together. Many members of the trade scoffed at such claims, believing that trading levels we saw this summer were now the “new normal”.
Unfortunately, independent reports from several members of the trade that have travelled Asia in the past two to three weeks, continue to claim there is a backlog of crust / finished leather in tanners’ warehouses, and reports of shoes unshipped at shoemakers as Chinese domestic leather consumption has slowed.
What we understand is that many tanners and shoemakers ignored the initial signs of a slowdown and continued to produce as if they did not have a care in the world as everyone was riding the Chinese domestic demand trading all the way up.
Now, that same train has stalled on the tracks as everyone from retailers to tanners simply have too much inventory and are looking to liquidate these inventories. The challenge is that many of the brands have changed their plans and leather demand for the second half of 2013 is playing out as we have been expecting and likely to fall considerably short of levels of last year.
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