German Perspective - 03.06.14
03/06/2014
The situation in China remains in focus. We have had more news about the very strict position of the government on environmental issues, more closures, further issues about tax evasion and smuggling, all of which suggests that the situation remains rather fragile. New, strict regulations that apply from July 1 may be met on paper in many cases, but whether companies would really meet the strict controls is another question. One would be far less worried if things in China could be sorted out the way they were in the past, but these days a business owner cannot be fully sure about this. Even some modern tanneries, who felt pretty safe regarding compliance, had a shock in the past weeks when they were suddenly shut down too. All this keeps the level of uncertainty pretty high and makes things unpredictable. What is a contract worth if a customer declares that he cannot take the product because his tannery is closed? This was a reply we got in April.
So, the situation remains pretty much the same. Everybody is convinced that his clients are safe and his contracts too and if there are problems it will be the problem of the others. We will see.
The leather and footwear fair in Guangzhou delivered mixed reports. Some say it was quiet with fewer visitors than ever, while others were more positive and said it was an event with value for the real players in the market. Those who were hoping to learn more about the situation in China were disappointed and just heard the same stories as before.
The only real headache for many is the weak drop-split price, which is harming calculations so much. In central and northern Europe most countries enjoyed a holiday last Thursday and many others will have one on Monday, which is typical for May when employees and business people take long weekends, calming activity down.
For us, business in Asia has been strange. There was some interest, but it was extremely isolated and far less spread than in the weeks before. German males are still far too expensive for China and cows find homes, but only for spot deals. It is pretty obvious that some players with good financial resources are taking advantage and putting some hides under their belts. It seems that this is far less about demand than a kind of speculation. Some believe that with the end of the slow season in July or August leather demand will pick up again, inventories will be low and buyers will have to return to the market and prices will be more upbeat again. To protect themselves against such a scenario some are willing to book now. However, don’t dare ask for more money or the buyers disappear as quickly as they have shown up.
Consequently, trading was based on isolated cases and general activity was quiet this week. Some packages were sold, but it took up to four days of negotiations until it was finally locked in. Anyway, prices for cows and low grades were about steady, as long as one had a lucky hand in the currency market. Timing remains everything. European business was pretty quiet this week and we did not find too much interest, even for the preferred items. It’s hard to have any real confidence in the market yet and it remains a week-to-week situation of sales and letters of credit arriving.
The kill: It is now the season of the low kill and we expect more holiday-shortened weeks. Weights are falling rapidly and numbers will be reduced also in the weeks to come.
What we expect: Actually one could copy last week’s statement. There remains a lot of uncertainty in the market and no real confidence has built up. So, basically, most conversations are based on the individual interest. Without uncertainties about China we could even see one of these calm spring market phases, but we still have to deal with possible surprises and it is certainly not the time to take any major market risk. It might take still some time until the floating stocks are all absorbed and they could become a burden or prevent the market from any serious recovery. We tend to believe that the market will continue to move in narrow ranges with underlying pressure on most prices.
| 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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