German Perspective - 24.06.14
24/06/2014
All this is related to global leather demand and the real interesting fact is that despite the missing capacity one doesn’t hear about any shortage of leather in the Chinese market. So there is a fair chance that all the boosted capacity in the region has never really been needed to satisfy the demand for leather in the market, and that it was just a bubble.
Large packers and protein companies are still not willing to consider this as it would imply that the leather market for 2014 has a smaller dimension than many thought. Most of the bigger ones around the globe are ignoring all hard facts, which include less demand, cash flow issues, government intervention in China and the consequences. So they declare sales are good, forward positions to be good and consequently prices to be stable. Maybe they are right and the industry will be successful in the end, but that means they will have to wait some more weeks to know. Fact is however, that the market they don’t control, splits and lamb and sheepskins for example, react far more realistically to the situation and just correct.
In the case of wet blue splits that means that a correction of around 30% since the peaks in spring and this converts to about $10 per hide. This does not apply to all segments.
The whole situation remains dominated by the question of how leather demand for the next season is going to develop and what the financial situation of the tanning industry will allow. For the market at the moment it means that we continue to be tied to present levels. The early correction of a few weeks ago of about $10 for cows from the EU seems to have created a solid base for the time being and as long as other markets do not suffer any more, the level should be safe for some time also in view of the lower seasonal kill.
The only risk could become some of the weird lots of unsold hides of questionable origin and quality that are still circulating the market. Letters of credit and and payments remain a risk. The summer is always the time of the lowest cash-flow in Asia and Europe and it has to be watched if this could influence the product flow and the position of sellers. Pricing is still in the hands of the suppliers and it remains the right of everyone to put whatever price-tags they like on their products. Nothing has changed in the business with the only difference that pricing is today actively managed by the beef industry and is no longer a daily or weekly result of dynamic trading. It might be better for everyone to take notice of the fundamental change we have been seeing for a while.
Trading and sales have been light this week again. Lower kills takes pressure off the market for all items. Cows can still be sold at the trading levels that have been established for weeks now, heavy bulls will remain supply-driven until the beamhouses are closed for the summer holidays, while lighter-weight male salted hides still look a bit pricy. Volumes have been reasonable for a pre-summer week and prices have been steady across the board. Consequently, it’s a classic June-July market prior to the holidays.
The kill: The kill in Germany has dropped again. A holiday in the South on Thursday and poor beef sales kept numbers down. Weight are at the lowest level of the year too and we fail to see any major change until the end of August ,except for weekly variations.
What we expect: We are now in summer mode. In July in China new credit facilities are released, which should ease cash strains a bit. EU cows seem to be the best buy for many and this market looks safe and stable now. Quality heavy bulls are in demand in the automotive industry, supported until the holidays by the low kill. The rest remains difficult and totally uncertain. Inventories that are of uncertain quality could still be a problem. So, at least half of the market looks pretty stable and the rest still vulnerable, with tanners buying hand to mouth and just picking around, but one should be ready for surprises later.
| 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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