German Perspective - 06.05.14
06/05/2014
This sounds a bit strange, but it is the usual pattern of the market in normal years. When the market enters the second quarter, the slow season starts. Apart from this, the market is still determined by problems in the cow market, related to the reduction of tanning capacity in China. It’s still not clear if this is just a temporary issue or if it’s a longer-term adjustment from a level of tanning capacity that the market never really needed to satisfy leather demand.
This situation has hit mainly the medium-lower end of the leather range with the higher end still reasonably untouched. However, if cow prices continue to slide or just settle at levels that have been reported, the entire price structure of hides will have to react eventually. This might take a little while, but quite number of types of raw material have fallen in price in the meantime and this will necessarily have an influence on the rest. To what extent is a different story; this is something to watch with care.
This week, Chinese tanners were again on the sidelines because, with the May holiday from Thursday, not much was really happening. Due to the change in the market tone, nobody is rushing to buy hides any more unless it is really necessary, and it seems that many tanners consider their stocks good enough to be able to play for time and wait until the very last moment before re-entering the market. Sellers react accordingly.
For the cow market the situation is clear for almost everyone. Cows, in particular lighter ones, have lost a lot of market and there is a surplus of material looking for customers and leather orders. Heavier cows are still in better demand, being still a potential substitute for steers. The steer and bullhide market is still in the same condition as before. Neither the leather business nor tanning capacities are different. Buyers see the cow market and press for adjustments elsewhere too, but they need still to buy the same number of hides as before and the sellers are taking a wait-and-see position before they surrender to much lower bids. This is making the spread of prices wider and this could eventually increase the pressure on steers, because the cheaper cows become, the more they will be used as an alternative. However, everything depends on leather demand in the second and third quarters, split returns and how other supply markets react to the new prices quoted over the past ten days.
Some sellers have already bitten the bullet and prices for cows are reported at between $6 and $8 below the peaks seen in March. It remains unclear, however, if the sales reported are re-sales, a combination of sales with older contracts to bring the average down, or real new purchases by tanners for existing leather contracts. In the real market, there is no tanner who will pay more than the amounts recently reported. The US dollar is not providing much fun for exporters either, even without testing the level of $1.40 to the euro. It remains glued to the $1.38-$1.39 range, but that is not making things any better.
Sales during the week were moderate. There is still enough demand for males. The kill is very low due to the weather and the holidays, lifting any pressure from the supply side. There is no serious surplus of material to make it possible for buyers to stay out of the market or to negotiate prices by much. Even a few sales for heavy cows were possible for special purposes and prices were only a fraction lower. For us, the clients in China were absent; we were not able to trace any interest at any price. Next week will be more indicative when tanners are back from their break and have to plan production and inventory for the weeks to come.
The kill: The kill remains very low due to the holidays and weather. Weights are declining too as one has to expect from May to August.
What we expect: The market needs to sort itself out again. Spreads are wide, leather business is uncertain and the fundamental changes in China will leave their mark. For the moment the trade is not yet clear about what the final consequences will be. A lot points in the direction of a period of revaluation of raw material prices after the phase of exaggeration and this touches all segments. Hides, skins, calfskins, splits and all origins. Everybody will have to analyse the situation carefully to come to a realistic valuation on new levels.
| 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 |
Weak |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1,80 |
Weak |
|
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,75 |
Weak |
|
| 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 |
Share this story:
