German Perspective - 03.09.13
03/09/2013
Falling prices in many markets are beginning to scare several players so it might be better to see clients before competitors do. The market concern hasn’t really reached Europe yet. Mainly because many hides in Europe are still benefiting from low slaughter levels, premium quality and the just-in-time programmes many tanneries are running (meaning tanners find it difficult to pull out without risking empty drums).
Consquently many have not yet realised that the spread between prices from Europe and the rest of the world rapidly rising. And there is presently very little that can stop this trend, at least until slaughter increases significantly over here. In the meantime one can just focus on the clientele in Europe and hope for the best with material that cannot be placed here.
The only real good news has been the moderately rising US dollar. This is good for exporters, but since it is linked also to the risk of an air strike in Syria it could become a boomerang as well. The uncertainty about developments in Syria and the wider region could have an impact on the markets and on businesses too. In the meantime we can only watch how far the price differences between the various hide types and origins can be stretched. The logic of ‘fair value’ fails, at least with the price differences we are experiencing today.
We have been advising for some time that a price correction of 10%-15 % would bring raw material prices back in line with leather prices and enable tanners to return to acceptable calculations. This correction has taken place in the US already, but here we are still far away from anything like that. This might be understandable for selected items that can hardly be substituted, but not in general. A number of European hides have their main customer base in Asia and one can hardly believe that the buyers will entertain the levels here.
So far, there is still reasonable demand for cows because they are a cheaper alternative, but with the levels we have reached now, their attraction is quickly fading. In any case the standard range of prices for the various types, grades and articles is out at the moment. This can happen, but it always leads to a reaction. What the reaction is will be determined by the impressions one gets from the trip to Asia and the discussions and impressions in Shanghai.
An interesting feature will be to find out if more hides have remained unsold in Europe than many have admitted. Not the regular and premium productions, but there are still many others. What has happened to them over the summer? If they have not all shipped and been paid for, there might be some surprises and pain around. For normal and quality productions it is ‘business as usual’. Without a higher kill or change in the financial landscape the balance will not shift quickly. All now depends on the kick-off of production for the winter season and the projections of demand from the volume tanners in Asia. They have to step in again eventually, but if leather demand has suffered too much during the high-price phase the orders may not be large enough to absorb the supply in many segments.
The weak currencies of many of the emerging markets might play a role too. Cheaper exports and more expensive imports are a factor, because some of the countries play an important role as suppliers and importers of expensive products.
Sales and trading this week were focused on Europe and on bulls. At the beginning of the week there were some bids for cows and low grades, but bidders who did not buy right away did not come back. Prices were a fraction higher for extra heavy hides and moderately lower for everything else. However, the volumes were too small to make a fair statement.
The kill: The numbers are now gradually climbing step by step. Nothing special. The bad news is that the weight of cow hides is very low for the season and the good news is that the weights for bulls have been reasonably heavy. The kill should continue to rise now with the larger volumes finally arriving in October.
What we expect: We have no idea if the Asian tanners are already in the mood to replenish. They are traditionally not good buyers in falling markets and all attempts to scare them with market news of rebounds and large sales have failed so far. So, let us see in Shanghai will change things. Next week we will know a bit more about what we have to prepare for into autumn. Everyone will have an opinion after the All China Leather Exhibition.
| 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. |
Weaker |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € n.q. |
Weaker |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ n.q. |
Weaker |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ n.q. |
Weakening |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ n.q. |
Weakening |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € n.q. |
Weak |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € n.q. |
Weaker |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € n.q. |
Firmish |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € n.q. |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € n.q. |
Steady |
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