German Perspective - 29.04.14
29/04/2014
Comparing the market situation with that of some weeks ago, we have tanning capacity taken away from the market, but we have not heard about any decline in leather orders nor of any shortage of leather, just of congestion in raw material supply. With the situation already persisting for several weeks, the conclusion could be that demand and leather production had been inflated and did not reflect leather demand. So, to blame the problems in the market on the shut-downs of tanneries in the north of China is only part of the story.
Several of the big suppliers around the globe are still defending their prices with the (correct) argument that their business with large shoe producers and high demand from automotive is still strong enough to defend prices and to hold the market steady. Well, if there were no connections between leather segments this could be true, but all the leather segments are connected. If the cow hide market is under pressure at the moment, the trend will spill over when the differences become too big.
The day may come when EU cows are so cheap that they could eventually substitute other raw materials. For the time being, we are still at the beginning of the re-adjustments and the results will depend on real leather demand. So far it seems that a lot of hides were bought recently more in expectation than because of real demand. If that is true, it is already enough to say that the deflated tanning charges of Hebei are now being substituted with more realistic ones somewhere else. This, added to higher administration and transport charges, has to be compensated for by lower raw material costs.
One thing is certain: general price structures between hide types (cows and steers, for example),origins and different material options (splits, ovine, substitutes) that have not really mattered for a long time, are going to matter now and will influence the markets in the near future.
For this week, it has meant reasonable demand for the hides with shorter delivery times, steady demand and leather business. Tanners in Europe do not hold inventory, tan fresh chilled hides and have generally only a four-to-six week contract buffer and need to take care regularly and more frequently of replenishment. With the declining kill, this is a pretty safe position (still) for suppliers. The rest of the market is pretty much in hand of the Asians. The numbers sold were not too bad and the price reductions still limited at least in comparison to what the few Chinese buyers had in mind. It seems that some of our colleagues have already dropped their pants; there were quite a number of rumours swirling around about sales of cows that are $10 lower than what people considered to be the market some weeks ago. And it seems there are more hides looking for customers. It seems that there were more stocks around than people admitted and a number of hides that had been sold needed new homes.
The kill: The kill is much lower now. Weather is warm, beef demand slow after Easter, weeks short due to holidays and so not too many hides produced. Weights are falling and there is not much hope that this is going to change soon.
What we expect: Well, the mood has changed and so has the psychology. As in classic market theories, greed has turned into fear and, as usual, when emotions run too high the future is difficult to forecast. There have been new levels set for cows and they will be the setting for the coming weeks. Bulls will face pressure too, but are much easier to defend. The biggest challenge now is to get abattoir prices in line with market realities and this will depend pretty much on big egos and their pockets, and decisions about how much they want to spend for the sake of it.
| 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 | € 2,45 |
Pressure |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 2,10 |
Pressure |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 2,20 |
Pressure |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1,80 |
Pressure |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,75 |
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 | € 1,85 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1,75 |
Steady |
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