German perspective - 10.9.13
10/09/2013
This set the pace then for the rest of the fair. Although the big players of the selling side had already paved the way by telling the market how good the interest and the sales were during the visits before the show, not all were convinced that the fair would see enough interest to justify the improved conditions being spread around in many reports. However, the first-day activity and the numerous interested buyers wiped the doubts away.
Everybody seemed to be busy and meetings had to be arranged neatly to manage all who were looking for a discussion. So, after day one most sellers went home in a good mood, which only moderately faded during day two and three.
However, what sounds exceptionally positive might need a second look. Most of the activity came from one region in China; the traditional and technically developed leather clusters in other areas of China hardly participated. In private discussions, cashflow was an issue in many tanneries and deteriorating orders for factories producing for the global brands was also a problem.
The price of leather and raw material was the main basis of discussion. Quality hardly matters anymore in the commodity sector as long as you can meet the price target of the shoe manufacturer and prevent leather from being substituted. We have the impression that our concern that leather demand could be the victim of the high raw material prices has at least partly come true. There were see many 'economical' hides in Chinese tanneries and far less of the US/AUS/EU articles. If anything, cows substituted steers and less expensive hides substituted the more expensive ones.
In the end, only the price per square foot matters and the finished articles can be managed with finishing technology on lower quality hides. The trend for either luxury and expensive or standard and cheap was once again confirmed during this meeting. This is putting a tough cap on prices for the rest of the year. One hasn’t got a single indication that there is room for any increase for standard leathers in the season to come.
In the meantime, sellers were happy enough to believe that the market is stable and will be for some time. US suppliers were advertising exceptional sales before the fair and some even during the show. Other origins joined the party and the economical ones from South and Central America were taking most of the benefit.
For us, the market was as good as for everyone else. Interest in dairy cows with stable or moderately higher prices in combination with a firmer USD helped to ease, but not solve, the problem of margins. As long as it was female or low grade all that was offered was sold, while for the problematic medium-weight males, the show did not deliver any solutions; they were too expensive.
The kill: The big boost in the numbers is still missing and with the summer not ended yet the situation is not yet ready for the change.
What we expect: For the week to come, most can lean back and flip through their notes from the fair. The key question is if the short flurry of business can be sustained and if those who were absent during the show will join or stay out. The majority of the sellers are optimistic, while we remain cautious for the standard material. We would need a number of good sales to turn this market long term. Leather prices and demand would have to rise too and this doesn’t seem to be too realistic. So, short term better, but in the medium term there are still a number of parameters which need to improve to bolster prices.
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