German Perspective - 18.2.14
18/02/2014
People might be back at their desks, but only by mid-week one had the feeling that the speed of operations was beginning to return to normal. We found this particularly worrying in regard to administration and this means in particular in regard to payments.
Payments and letter of credits are coming in very slowly and now it's anybody's guess if this is a shortage of money or banks working slowly after the festival. Customers are blaming the banks, but this doesn’t seem to the full truth. It's going to be interesting to see if a lot of invoices, which are traditionally all settled prior to the holidays in China, have remained unpaid and tanners need to collect this money first before they can think of new lead of credits being opened or payments effected.
Within the trade there is quite a bit of confusion about tanners’ inventories. Many are claiming that they feel the tanning industry is still under-bought and with the lower kills in the US and in some parts of Europe the market can only go up.
The automotive industry is projecting reasonable growth, the shoe brands are forecasting steady business and upholstery seems a little so-so. For the time being, however, tanneries seem to have taken a different position about their raw material budgets. Some, and this might apply more to the bigger ones, have continued to fill the pipeline sufficiently and some seem to be pretty relaxed and have had time to analyse the situation.
There are others though that are not so comfortable and optimistic or possibly even short of the necessary finance. They have been waiting in the hope for some market correction due to the holidays in Europe followed by the ones in China and have to figure out now that hide prices have not declined and, in several cases, even gone up. The response is now more and more to shift from the preferred expensive raw material more economical options. The question is if this could cause decline in demand for the more expensive hides strong enough to have a real effect on prices. Or are we just seeing the continuation of the general up cycle where one segment is taking a break while the others are already taking the road ahead? We are entering the busy production season and suppliers are trying to keep the fire burning at least until the Hong Kong leather fair at the end of March.
In Europe we experienced more activity mid-week, which is not unusual considering that most of the supplies in Europe are based on regularly renewed programmes and the majority of the tanneries are not holding any significant physical stocks.
The regular sales volumes this week in Europe have been totally normal and in view of the reduced kills not leaving any unsold raw material. The business is still pretty much focused on males and they are the ones missing in the slaughter mix.
Interest from Asia was not very big. Tanners were continuing to test the water, but there was nothing really of any serious volume to choose from. The interest continues to be for low grade and cheaper items and here some minor increases in prices were able to be obtained. For the regular material like dairy cows there was hardly any movement in price and it was extremely difficult to convince the regular buyers to take at least reduced quantities.
Although the US dollar is not changing much even the small variations played quite an important role and the decline towards the end of the week was not good news. In summary, it was an acceptable week as far as total sales numbers were concerned, but nothing really to get excited about.
The kill: The kill remains pretty slow and this applies in particular to males. This might not be nice but it is normal for the time of the year and nobody can expect any improvement before mid-March.
What we expect: We cannot figure out what can trigger this market out of the narrow ranges seen for a long time. No upside, no downside and so things should remain pretty much the same in the week to come.
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