US Perspective - 22.4.14
22/04/2014
As to the driving factor behind the lower prices, some members of the trade point to the pollution problems facing tanners in Wuji [China, where the government is closing tanneries it deems too polluting], while others insist that record prices have taken their toll on the working capital of tanners. In addition, the exchange rate has fluctuated considerably the past few weeks and this too is making it more difficult to conclude business. Meanwhile, we also heard some members of the trade pointing in the direction of traders claiming they must be liquidating their long positions, as their offering prices were supposedly at least a couple of dollars cheaper than packers.
Last week saw packers resume offering to the trade, as the week prior, packers appeared only interested in offering direct to tanners. Worth noting is that although asking prices for the most part were unchanged from levels packers were seeking at the APLF in Hong Kong, there were not nearly as many steer hides and especially Jumbo and Super-Jumbo hides offered last week. Instead, packers had more than ample offers of heifer hides, as well as even some lightweight steer hides for sale last week, while we also heard that producers of wet blue had plenty of offers of wet blue hides and looking for buyers who could by volume.
As it pertains to cowhides, although slaughter levels continue to run more than 10% lower than levels of a year ago the past 6-8 weeks, there were a surprisingly decent number of cowhides offered last week, while asking prices appear in line with asking prices of the week prior.
In the meantime, it appears the problem in the Wuji area are impacting members of the cowhide trade considerably more than members of the big packer trade, as many of the tanners in this area were known for utilising cowhides when producing their upholstery leather. Also weighing heavy on the cowhide market are numerous reports of several sellers having to resell product due to tanners in Wuji unable to accept deliveries. According to sources, many re-sales had been concluded at no worse than steady levels to as much as $3 / hide lower during the APLF. However, we have heard rumblings that some re-sales have taken place in the last few days at levels of $5-$6 under their original sales price.
THE LOOK AHEAD
As to what we expect for this week, we suspect that we will see a full list of offerings from most producers as it is likely we will slowly start to see slaughter levels move higher, while we also tend to believe that not all sellers are sold as far forward as they have been advertising. In the meantime, we are likely past the end of the busy season for many tanners and with orders completed, tanners are likely not to be motivated buyers unless they perceive there is value in offers.
Something to keep in mind is that demand for wet blue splits, which had been “red-hot” for several months, has slowed considerably the past week to 10 days. Members of the split trade share that tanners are not nearly as interested in offers and we tend to wonder if split tanners have appeased their appetite and it is now likely we might see a reduction in split prices as we move forward. This of course would not bode well for those selling hides, as we believe split prices were one of the major driving forces as to why hide prices reached record levels.
All of that said, we have our suspicions that packers will likely have a difficult time accepting lower prices. This attributed to profitability in the packinghouse is running close to $100 / head in the red, and suspect packers will want no part of lower prices as upper management is likely asking all sales department to maximise the value of their sales. However, this is likely to be a double-edged sword, as slaughter levels are likely to rise moving forward and with temperatures starting to move towards more seasonable levels, packers will want to keep their warehouses clean, while attempting to stay sold forward.
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