German perspective - 15.10.13
15/10/2013
From the fashion side there wasn’t a lot that was really new. High quality, classic finishes and natural colours were dominating the stands. We found it interesting to see that the number of stands seem to be declining but the size of the market leaders is growing. The attendance was pretty normal for an October show and most of the booths were full. Most of the raw material people travel to Italy to see how the busy season of the leather industry is going to start and how leather orders will influence the raw material markets. Any potential concerns about a reduction in leather demand were put to bed reasonably quickly. Leather demand continues to be there and most tanneries remain pretty active.
However, it is still profitability that is missing for the vast majority of the leather producers. There are certainly the ones which are set up very well, producing exceptional quality and in the position to pass the increased raw material prices to their customers. But for the majority it is a different story. They are busy, but the raw material prices do not allow them to generate the margins to justify running the business.
Financing the business is another challenge; the situation is repeating itself. Tanners need to cover orders to feed their production which means they need to buy raw materials. For a wide range of hides and skins, whatever is produced is also sold and tanned, which keeps butchers and sellers ambitious about the future. The recent rebound in the US market delivered new confidence in the theory of long-term rising raw material due to supply shortage.
The suppliers have gained more control and many butchers are selling hides, eliminating more and more of the trade; they see the trends as a confirmation that the trade was manipulating the market. Somebody is always trying to manipulate the market for their own benefit. This attitude has shifted to the beef industry. Despite the general positive performance of the market during the last week we should not ignore that we see a number of sideline articles struggling to find a buyer. Heavy calves may see a new record every month but material below 14kg is difficult to sell. The fact is that the products of high added value set prices levels for raw materials which simply cannot be achieved in the standard sectors. There would be nothing wrong with that if in our part of the world the hide prices were fixed according to their individual market value and not on historical generalised levels for the whole. The value of hides is fixed and determined in a different way and this must be converted to the prices at the abattoirs.
Sales this week were good. Prices were pretty steady with a fraction more for the high-quality end. Asia was not really paying more for cows and attempts to push prices higher in relation to the reports from the US were in vain. So, with a bit of luck in the currency market one could make a tiny bit if the timing was right. So, volumes were ok, margins were not - probably the answer most tanners would give, too.
The kill: The kill has levelled out with the higher numbers reached in September. Muslim festival Eid al-Adha [October 14 and 15] will influence the kill positively too and the high season is approaching. So, we expect slaughter numbers to rise and continue to be pleased with the weights of the males, while the weights of cows are lower than ever at this time of the year.
What we expect: The market has stabilised thanks to the US market. However, the balance is not intact. Heavies, no problem, but light weights are still far from being ok.
In the coming weeks more of the overseas hides bought by the European tanners will arrive and this could affect demand as well as weigh on financials, because they have to be paid when they arrive. The week after Lineapelle will be quiet again in Europe and let’s see what the Asians still need to buy. The market looks stable for the moment, but certainly not ready for a firmer trend. Our general concerns about finance and rising substitution of leather are still valid.
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