German Perspective - 08.04.14 - leatherbiz: Lea Leatherbiz

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German Perspective - 08.04.14

08/04/2014
What happened this week: The time of great expectations is over, the APLF fair in Hong Kong has taken place and most people are either home already or due to come soon. Many reports have already been written about attendance and impressions, and the opinions are as divergent as ever. One thing is for sure: people are as uncertain about things after the show as they have been for a long time; there is a clear line between the strongly performing markets and the ones that have, for some time, been in a less straightforward situation. This means that, in particular, the large suppliers from the US and South America still display great confidence in the market and demand, which shows in the prices they ask and in their tough defence against any ideas from buyers about lowering prices. Most are pretending to have strong solf-forward positions, but it seems that this is not the case for everybody. In any case, the strong hands were not at all willing to consider any pressure on prices because they do not need to, and this made the difference.

Most others, mainly European visitors and suppliers, were far less impressed by visits to clients in Asia, in particular because the problematic situation in Hebei (see the News section below) made discussions complicated. Chinese buyers saw the position of the Americans and felt at the same time some of the uncertainty of their European suppliers, at least for cows, and did not really know what to do. Some were testing the waters and placing bids well below the market, which were mostly refused because the suppliers remain very cautious about their prospects to push any lower prices back to their abattoirs.

As far as we are concerned there was not much business done in the end and only on day three were some smaller deals done with long-term customers with whom we have strong relations. The fundamental conflict remains between those who think that the market remains supply-driven and that global leather demand will outpace supply for the rest of 2014, and those who are more focused on weaker global growth, lagging domestic demand in China, rising production costs and issues around the financial challenges many tanners are facing. Who is right? Anyone hoping to get a decisive answer during the show must have been disappointed and returned with almost the same questions as they had on arrival.

As far as the leather business is concerned, the strong performance of automotive leather was confirmed, while upholstery remains an under-performer and shoe upper leather steady, possibly with a shift of production out of China to less expensive destinations. This explains why Indian, Pakistani and other tanners who have access to local raw material and shoe-making facilities were the most positive and happy exhibitors at APLF. They are capturing large parts of production that is either closing already in China, or in discussion about doing so. It looks if we are at the beginning of another round of restructuring in the industry, like we see every decade or so. For many reasons, growth in China seems to have peaked and some production capacity along the leather value chain is on the move again.

Sales of a few cows, a few ox-heifers and a few low grades made it a better week than the ones before and as much the numbers might be all right, the prices are not really satisfactory considering what the hides cost at the abattoirs. Most sales were on steady levels while for cows some concessions had to be made. It will be interesting to see the interpretation of our colleagues of the market and what this will mean for prices at the abattoirs in April.

The kill: The kill wasn’t too bad and the numbers went up by quite a bit. This might just be one of the weekly flurries, and with Easter (April 20) coming up now there might might be a bit of stocking up in the supply chain, but it doesn’t seem to us, that this is a change to higher levels. The weather is warm and cattle are moving into the fields earlier than normal this year. Weights continue to fall.

What we expect: The week to come will not change much. People have to sort out their individual impressions of APLF and this will influence abattoir buying. Only after the new prices are fixed can we figure out if the time has come to think about a moderate price correction to get things back to a more steady level. We cannot expect large changes, however, and we think prices will continue to fluctuate in a small range, with cows possibly a fraction lower.

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

 Pressure

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 1,95

Pressure

30/+ kg

33,5/35,5 kg

27/+ kg

29/31 kg

€ 1,80

Pressure

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 € 1,80
 Steady
Thirds bulls 30/+ kg 38,0/40,0 kg 24/+ kg 33/36 kg € 1,75
 Steady



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