German Perspective - 25.3.14
25/03/2014
Buyers are eagerly awaiting their suppliers to see if there will be any chance to improve margins by a reduction of raw material prices into the second quarter of the year. However, this is unlikely to happen yet, because most of the large suppliers and producers feel still comfortable about their positions and most large players do not seem to have to have any worries about their order books in the coming months.
On some of the edges of the market, the situation in relation to previous years has started to change. In particular, the new pollution controls in China as well the stricter custom controls will have a direct impact on demand, product and cash flow. With the size and importance of production and consumption in China, this might not hit the majority of the supply chain, but it is enough to have an impact if certain segments are touched.
In addition, we are facing uncertainty about the crisis around the Crimea - the deterioration of relations and potential sanctions. Other political and economic frictions affect business: The depreciation of the Chinese currency and the rising tanning costs due to the limitation of production capacity is shifting the parameters of calculations. The problems of financing and the subdued outlook for the Chinese economy have to be considered, too.
These negative influences are battling with the positive news: the rising global consumption of leather. Almost all global brands related to leather reported a good or very good 2013. From automotive to luxury and shoes, most reported growth as well as a positive outlook for the current year. One can feel confident that the first half of this year will remain positive, which only leaves the question of the impact the rising cost of leather for the second half.
Our main worry is the situation in China in regard to cash flow, tanning capacity and cost. In the past, the government had always loosened the grip after tightening, but this time it doesn’t seem to be that easy and we will have to wait to see if regular productions can absorb the amount of business at the same speed the others will have to let it go [with tanneries deemed too polluting closed by the authorities].
The balance of supply and demand is shifting. For some articles this can be seen already with stocks beginning to build up, while for others it seems to be a while away.
Trading this week was a mixed bag. Again, low grades and good quality males were in steady demand and prices remained where they have been for a while. Cows were again more difficult but, in the end, some were moving and the little uptick in the USD value helped to ease the pain on prices. You can’t get what you need, but at least you did not have to take less than before.
Total volumes were a fraction better than in the previous weeks, but still well away from the activity in January.
Collecting money, letters of credit and deposits and arranging shipments remains one of the toughest parts of the day - excluding for the top clients, of course.
The kill: The kill has levelled out and the numbers are what one would expect for the time of year. The number of males and the average weights are still well below what can be considered normal for this time of the year. This is not matching well with calculations and market preferences.
What we expect: Nobody expects anything serious to happen in the week before the Hong Kong show, particularly on the price front. Activity will depend on if buyers feel it might be wise to buy before the show or if they are covered enough to stay out for a few weeks. We think that many will watch the developments in China and continue to buy hand-to-mouth until the fog lifts.
| Type | Weight range | Avg. green weight | Salted weight | Avg. weight salted | Price per kg green weight | Trend |
| Ox/heifers | 15/24,5 kg | 22,0/23,5 kg | 13/22 kg | 20/21 kg | € 2,50 |
Steady |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 2,15 |
Steady |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 2,25 |
Weakish |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1,95 |
Weakish |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,80 |
Weakish |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2,30 |
Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 2,30 |
Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 2,20 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1,75 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1,75 |
Steady |
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