The German perspective - 29.10.13
30/10/2013
The euro has gained almost 7% versus the US dollar since July while at the same time euro prices have hardly changed at all, meaning EU hides have become 7% more expensive or US hides 7% cheaper, but the currency gap has been closed by a similar rise in USD prices. So, that has offered F.E. the option of either calling the US market firm because of rising prices or steady in terms of the real valuations in global relations.
Anyway, what has not changed is the tension in the European market. The classic price structures are not working anymore. Lighter hides are more expensive per kg than heavier ones. Consequently, the historical pricing methods still used at with many abattoirs do not reflect the market realities : there is no reason why a light cow or bull should be paid higher just because their heavy counterpart is having a strong performance.
This is, however more a structural than a market problem. With the rising asking prices in the US, the high levels of the European males, the (dairy) cows are getting back into the focus. Rumours about declining kill in the US have made a number of industrial tanners nervous again and being in the high season of leather production, a number are reviewing their options for cheaper, but adequate hides.
Since dairy cows have become an accepted product for shoe production, split sales and prices remain on record levels and dairy cows are an attractive alternative in relation to the prices asked for steers. Consequently they were in the focus of interest this week from Asia and a number of clients not seen for months were back remembering their 'long relations'.
However, the weak USD made negotiations not easy. To compensate for the currency changes in the an increase of USD 2-3 per pcs is needed what was not the idea of the buyers. So, it took days until some kind of compromise could be achieved and this was not really making anybody happy. Prices went a little higher, but not to the levels needed.
In Europe the market was pretty quiet. It seems that the majority of tanners have already covered their immediate needs and for delivery until the end of November most drums are filled - certainly thanks to the substantially higher kill which is easing the supply strain. There is still sufficient demand for heavy bulls to absorb the higher numbers for the time being, but the lighter end remains difficult simply for price reasons.
Generally one can fee that leather production is running its seasonal course and might be even a bit inflated due to the early holidays. The holiday in Europe and China might have a stronger influence on the market conditions this year, but this might be only realised when it is happening. Independent of demand, the financial side of the situation should not be forgotten. Another German upholstery manufacturer closed and more Italian tanners shut down in recent weeks.
Sales this week were about normal. If there would not have been the price or currency issue one could have certainly sold more. Tanners want to buy hides, but they cannot afford the prices.
The kill: After Eid ul-Adha, the Muslim festival of sacrifice, which saw inflated numbers, the kill remained good this week, despite the unusually warm weather. The weights for males remain impressively high for the time of the year and confirms that cattle had been held back. Butchers, however, complain about beef business and believe that the numbers will fall soon again.
What we expect: We believe that the market will remain in the hands of the currency and financial situation. From the sellers’ side one cannot expect that anything will change and they will continue to play the supply card. Tanners who did not cover enough raw material in time will have to bite the bullet no matter if they operate with profits or not. As long as the market continues to be driven by political decisions and financial issues remain very few changes will be seen, but that does not mean they are not there. This is something what we learnt some years ago, but the memories are quickly fading.
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