German Perspective - 17.06.14
17/06/2014
Everyone who is part of this group can have no complaint about the present situation and if there is anything to bother them it might be the margins for hide processing, which remain squeezed.
For the rest of the market the situation seems to be more complicated. With the missing ‘Wild East’ markets, the potential outlets and customer base for many has shrunk by quite a bit and it is difficult in the present market and at the present time of the year to attract new customers or challenge existing ones to take more product than is absolutely necessary. Also, it seems that the World Cup is dominating the interest of people far more than the final weeks of production before the summer break.
The lower seasonal kill during late spring and summer is taking a bit of pressure off the market and inventories are not rising by much. Shipments and letters of credit openings for new contracts at reduced levels are also pretty regular and it is just the expensive contracts for Hebei customers that have turned sour. Anyone who had too many of these might be regretting their exposure in that part of the world and be reminding themselves that there is still no free lunch in this business.
A lot of tanners at the medium and lower end of the market are struggling. They are struggling because of the high raw material prices that they have had to pay in the first half of the year, affecting profitability, and because of the recent sharp decline in split revenues. They are struggling because of a decline in leather orders, even if only seasonal. They are suffering from reduced turnover and negative cash-flow and because it is still about 10-12 weeks until the low season is over.
Consequently, one hears about delayed payments and delayed letters of credit or deposits. Anyone with any remaining doubt about the effect of rising raw material and leather prices should take a tour of some shoe and furniture shops to get an idea what was and is the reaction of mass producers in those segments: there is less leather and more substitute material in their ranges. It’s hard to see any change in the next season, except in items for which material is not a factor. We should be happy that the automotive business is still outperforming everything else and that there are no changes on the horizon there for the rest of the year. It’s best not to think what would have happened to the market if the auto makers had announced a decline in orders and production for the second half of the year.
It’s also remarkable that the decline in production in China due to tannery closures have not created any shortage of leather supply. Quite the reverse. There are weekly reports of small and medium-size shoe factories in trouble and closing down. In China this is due to the exploding cost of labour and in Europe it is frequently because of a sharp reduction in orders from Russia and the Ukraine, where a number of the smaller remaining shoe makers are still selling a good proportion of their production.
Sales this week were far from spectacular. There was only a bit here and there and the main interest was for cows. Extra heavy quality bulls are still finding a home, supported by the lower kill. Lighter weights and other grades are feeling the pain and look pretty high in prices compared to other alternatives. The slightly higher US dollar helped a bit to get some deals done in midweek, when bids were just below the asking prices of the beginning of the week.
The kill: The kill declined even further. Extreme weather conditions in several parts of the country had an effect, beside the general low season. Another holiday in southern parts and the World Cup will keep number lows.
What we expect: It is difficult to expect any real change in the market, unless we get important news. Tanners still do not see any reason why they should spend more money and sellers will continue to try to defend their prices until the very last moment. However, for the time being it seems that there is always one hide too many in the market, keeping prices level. There is no momentum in the market that seems to be strong enough to trigger any substantial change in prices in the week or even weeks to come. So, males should see more pressure while cows have more stability.
| 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 |
Pressure |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 2,15 |
Pressure |
|
| 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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