German Perspective - 27.05.14 - leatherbiz: Lea Leatherbiz

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German Perspective - 27.05.14

27/05/2014
What happened this week: This week was again a bit awkward. Most of the market is seriously trying to stabilise, which is in the interest of most players. Prices were too high and this was known by most, but nobody wanted the market to fall rapidly or by too much. Two weeks ago, European suppliers of dairy cows had to bite the bullet with a drop in prices of about 10%. Since then the rest of the world has had to adjust. This was not only for new business, but also to sort out many of the contracts and shipments that have turned sour as a consequence of the problems in Hebei province. This has become a delicate matter: on one side everyone was trying to safeguard the market and on the other side tanners were not queuing up to pay the asking prices.

At the beginning of the week there was quite a bit of interest and more bids came in. However, they were below asking prices and counters were not received with great excitement.In the end, Chinese buyers were not willing to accept asking prices and, as the week progressed, the more buyers began to calm down and withdraw their interest. Most of the bids were for heavy cows. Heifers, which had still been favoured a week before, lost their appeal, and light cows too.

Many are calling the end of the downward trend already and saying prices will stabilise. This is an option, but it might be misguided too. Although there has been a round of sales in the past ten days, it seems that many of the sales have been including resales of older contracts, which makes the volumes far less impressive. It is true that the global beef industry is digging its heels in now and taking offers away from the market or just refraining from selling. This might help temporarily, but is not really answering the question about the real balance between demand and supply.

This might be the biggest problem these days, because hides only come to market if the beef producers and their marketing arms offer them. On the demand side, tanners are beginning to take the same attitude. Since the one-way street of a firm market has been left behind and the bull market is not feeding itself any more, tanners seem to want to play the game by not buying when their price targets are not met. With the security gone that an investment in raw material will always be good, even if the profitability hasn’t been there, buyers have become far more rational in their activities. It is also pretty obvious that the real physical demand for raw material is declining, possibly due to the low season and the restructuring of the industry in China.

There are still sectors that are running completely normally and leather orders continue to be at sufficient or even high levels. This applies in particular to the automotive segment. After the great turmoil and confusion of the past weeks, the situation is settling down. This is leading to a settlement in prices and market players are cooling down on both sides, although their ideas of where the market will move to are still pretty far apart. Tanners want sill to buy below the established levels of the past week while sellers are trying to bounce back and to send a signal that the correction is over. A bit of relief for export calculations came from the currency side. The euro is losing a bit of its shine.

Sales this week were reasonable for males in Europe. Prices had to be shaved moderately down, which is just a gesture in respect of the general market trend. Cows are a bit of a mixed bag. Prices obtainable in Asia are stable for small volumes of sales after the correction, but the volume of bids were still another $2-$3 lower and have been turned down.

The kill: The kill has settled at lower levels. In the coming weeks we will see the lowest levels with one day holidays in many weeks and beef consumption and exports slow. Weights continue to fall rapidly.

What we expect: The male market has settled at steady or a fraction lower, and with the traditional forward programmes, not much movement can be expected in the coming weeks. There are still some hides circulating, but their quality is rather questionable. We think that the stalemate will persist.It is hard to find a reason why any of the players should move from their positions, because there is no real need to do so. Buyers as well as sellers want to push the market in their favour, but no one seems able to take the first step. So, one has to believe that the market in the coming weeks will hardly move until new and clear information about the leather business is obtained.

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 € 2,05
 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

€ 1,70

 Steady
Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 2,30
 Pressure
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 € 2,15
 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 € 1,70
 Steady




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