German perspective - 21.1.14
21/01/2014
An increasing number of tanners are beginning to stretch their payments and the number of buyers taking an increasing number of extra days to transfer their debts is rising. Even from China one hears about later payments and more finance involved. This is not unusual before the Chinese New Year holiday, but it seems to be even more pronounced this year. However, the raw material suppliers are still not really concerned about the situation and so we just go on as before. Prices remain stable and in some cases even higher.
Tanners are beginning to more aggressively downgrade their raw materials and this is inflating demand for low grades and cows while the more expensive end is facing more resistance.
The automotive industry and the premium suppliers are painting a rosy outlook for 2014. Global car sales are forecast to rise by another two million vehicles compared to 2013 but it is complicated in that the automotive industry will need more leather, but wants to pay less. This means either reducing leather demand and consumption or making more concessions on quality. It will be interesting to see what the decisions are going to be. What concerns us most, however, is that there is hardly anyone left who could imagine that hide prices could move seriously lower one day.
For one with a neutral position, the signs for a bubble are increasing and it is not only that nearly 100% of players are riding this wave. The market liquidity is reducing and the pipeline is far better filled than for a long time.
Not all products continue their rise and quite a few, like lamb and sheep as well as light calf, have already reversed the trend. It always begins somewhere. For the moment, however, there are still too many who are supporting the trend and sell the market the story of falling supply.
As long as everyone buys the shortage story and the consequence of rising prices, the concern of failing and the motivation for stepping out remains low. What looks wrong today might become right tomorrow. This is also well played by several of the large suppliers who continue to move the volumes at discounts to selected customers and insist on published levels from the less favoured buyers. And so the win-win situation for the majority of the market players continues and this is creating the stable platform for the market.
Sales activity this week was pretty normal. What was produced could be sold, but it is pretty obvious that the hotshots of the past, the high-quality materials, are no longer the market drivers. As more expensive and premium material, it is difficult to convince the buyers to continue their purchasing and to pay the premium prices.
The first buyers even of premium heavy hides have done their homework and continue to substitute more economical alternatives. Only the best of the best can still avoid any pressure. Consequently, sales of cows and low grades were the best this week and cows were even able to advance a fraction.
Bulls were about steady, but with less interest, and low grades were the ones doing best. The firmer dollar towards the end of the week eased a bit of the pain in calculations.
The kill: Everybody around the globe is complaining about low kills, but we are pretty pleased with the numbers for a January. Weights in particular for cows have come down and they are below par for the time of the year. Bulls are about what one would expect. It seems that the levels will remain steady although any reductions would not be a surprise.
What we expect: We have described our concerns above. However, a trigger is needed to change the trend. The next week’s sales should decline with more Chinese leaving for vacation. It also seems that the bulk of coverage is done for February and March production and we would not be surprised if sales begin to fade for a while. However, prices will not move much, because sellers are still not seeing any problems.
Share this story:
