German perspective - 24.9.13
24/09/2013
On Wednesday, the US Federal Reserve System published that they are not willing to end the 'easy money' policy, and the announcement was not expected by the markets. This has sent the USD substantially lower and stock markets up. We mentioned last week that we were afraid that the ping-pong range of the USD could be ending soon and we got it this week, trading now around the 1.35 level, and we are about 5% down vs the levels of July. This has made EU hides 5% more expensive or US hides 5% cheaper - which makes them, in combination with the retreat of prices over the summer, the much better buy at the moment. If one needs confirmation one just should look at the sales of US hides in the past weeks where more and more hides are finding homes in Europe in substitution of EU origins.
The short-sighted players are still pointing to the reasonable demand from European tanners, but they might be reminded that tanners here did not enter the summer season with sufficient stocks, because prices were already too high and they needed to bridge the time until the overseas hides arrived. For the past weeks the short term procurement in Europe to feed productions within a few days supported the market in Europe in combination with the low kill, which prevented people from building stocks.
However, all this has not touched the automotive and luxury market. In this segment hardly anyone is happy, but substitution is far less a factor than for the standard items.
The reports from the GDS shoe fair in Düsseldorf and Le Cuir a Paris were positive. While this is hardly a surprise for the luxury sector, it was good news from the shoe side - with the only exception that many were reporting massive price pressure and an increasing number of shoe factories shifting to leather substitutes for the next summer season due to price issues.
Demand for top-end leather remains strong, but qualities remain soft and natural, so one wonders how all the good quality leathers can be delivered when at the same time the demand for standard articles is declining. To handle this, many top-of-the-range producers are working very hard in the R&D department to increase cutting values without decreasing the natural beauty of the product. This is also necessary to ease the massive imbalance in the range and spread between price and quality of leather. The problem of excessive demand for top-quality material and declining demand for standard leather for price reasons needs to be sorted out eventually.
Selling this week was - despite all the complaints - better than in many of the previous weeks. We are still missing any demand for lightweight bulls, but for the rest there was a little everywhere. If we would have taken the lower bids for the low grades there would have been good sales this week.
However, abattoir prices remain too high and with the decline of the USD sales might have been good, but margins definitely were not. Cows were the quantity leaders and although the arguments about prices were rough and long it was possible to hold prices steady, while for top-quality heavy bulls incremental increases were achieved.
The kill: The kill continues to rise. The weights for bulls are increasing and this is confirming our view that a lot of cattle was held back in the summer and has put decent weight on. This is early for the season. For cows the opposite applies. Only the old dairy cows are killed, which makes hides pretty light and thin.
What we expect: The Asian are on holiday and those in China are already preparing for October. It seems that the first round of purchasing is enough for the moment. Many Asians will come to Europe either for holidays or to visit the Lineapelle fair in Bologna, Italy, and some EU suppliers at the beginning of October. It seems that they might want to see how things develop until then before making new decisions. For the moment they are not prepared to follow any higher ideas which have to be asked because of the currency fluctuation. So, we might see some weeks with less activity unless sudden leather orders arrive.
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