German perspective - 3.12.13
03/12/2013
What happened this week: This was a week could be called a 'non-event'. The general mood of the market in many sectors is beginning to shift. For the first time in weeks, people were willing to discuss the potential of the market to decline.
While tanners were complaining about high price levels, the situation began to change. In China the calculations are getting worse and many tanners report declines of split prices which had been the only justification for certain prices paid for hides.
Numerous customers speak about price reductions for splits of about 10% and as usual when prices are falling there is the scare that this could continue. 10 % for the split is 2%-5% on the hide value and no one knows when buying hides today what the price for the splits is going to be when the hides have arrived and are soaked.
Tanners used to be convinced that the split credit would be better when hides enter the drums, but the sentiment is now shifting.
The split credit is reflected in the hide prices and while we did not receive any bids from Asia this week a number of our colleagues in Europe reported bids to be $2-$3 below the previous weeks. This is approximately the difference in the split value.
In Europe the prices for lime splits are slowing descending with the demand from the collagen industry fading. The supply side is not too concerned. Packers and suppliers are convinced that the present market situation is temporary and the fundamental shortage of raw material persists. Come 2014 the kill will decline again and supply will get the upper hand with prices trending higher.
It is one option to look at supply and it has become the popular view in the market in the past few years. Declines were just a pause in the upward trend we have seen since 2009. This has offered sellers confidence in slow periods and buyers fear that it be a trap and the beginning of another rise. This has worked pretty well so far and only those who had the courage to buy into the short-term corrections had the chance to lower their average prices.
This has made most buyers very careful not to miss the opportunities. However, this was always under the conditions of strong and rising demand for leathers in all segments and demand for leather was expanding faster than supply.
Now we are at a junction and the trade is discussing if there is a chance for a change in the trend or if it is just a little break before the holiday season.
Who is taking which position is pretty clear. However, the key question is if there will be a change in demand. It is the wrong time of the year to take a clear position. Many tanners, except automotive tanners, are reporting a decline in leather orders rather than the normal pattern of the winter season where generally the orders are strong and factories busy.
In the meantime it was another quiet week of trading. There was hardly any interest for hides except the usual potential for heavy bull hides with the usual suspects.
It is remarkable that prices for veal and lambs are already declining and there are rumours that the first discounts for cows in Asia were taken and other markets do not look too promising.
It is obvious that the market has lost its momentum and it will be interesting to see how convinced sellers are about their position and about supply and demand in the first quarter of 2014.
The kill: The kill remains steady and on the high levels which we have seen for several weeks. Most butchers expect this to continue until Christmas. Weights are heavy and rising moderately. The balance still sees more females than males in the slaughter mix. For the coming weeks we do not expect any change.
What we expect: There is finally a serious change in the tone of the market. This does not necessarily mean that prices decline right away. If the sellers do not reduce, prices will be held as they have been held for a while, similar to last summer and sellers can only hope and wait that enough tanners have to return to the market before the New Year to keep positions clean. We think it is time for a correction for most grades.
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