German Perspective - 1.7.14
What happened this week: There have been no new triggers in the market. The holiday period is ahead of us, but already it feels like the peak holiday season - at least in Europe.
The final contracts for hide supplies until the holidays are done, the planning of holiday deliveries wherever possible have been discussed and it seems most of the tanning industry has mentally finished the first part of the year.
In Europe, nobody is rushing to buy and except the fresh, chilled deliveries almost nobody wants to know about hide shipments before they close for vacation.
The appetite for hide purchases for after the holidays is also pretty limited, and is either related to long-term relationships or focused on specialty items that are better secured than waited for.
In general, tanners do not seem worried about supply shortages into September and are not considering the option that hide prices could go higher, nor are they expecting any increase of leather orders until autumn. Consequently, most are sitting on their hands and only doing what cannot be avoided.
We have not seen a real summer break for some time and so many have forgotten that there is nothing unusual about the present situation in Europe. However, it means little business until some get back to the market to fill their drums for after the holidays.
In Asia the situation is different. After the sharp correction some weeks ago the market for cows has quickly bottomed. Tanners in China with long shipping times have to decide if they want to take some EU cows and get them into their tanneries for the new season start of production.
There is no overwhelming amount of interest, but the bits and pieces every regular buyer is willing to take are enough to keep supply and demand in balance and it might have been a good thing in the end that we had a sharp correction, meaning the hides where competitive again. With other origins holding out much longer and sliding slower it has been a decent shelter and kept sales and shipments pretty much intact - at least so far.
One can still sense the financial tensions in China. Letters of credit (L/C) are coming in from many, but a good number of customers are visibly counting their money and banks are not opening L/Cs the day after the application like they used to. With limited shipping space for heavy payload boxes this can sometimes cause serious delays of shipment, and the slow steaming policy added to less direct services can also lead to significantly extended shipping periods.
It is difficult to get a clear reading on the situation in other markets. Many suppliers around the globe are still trying to hold the market steady and are betting on the fact that they can hold hides longer than tanners can wait to buy. Whatever this strategy means, it does not consider the possibly that leather demand has faded and will be lower for the next season, and leather prices are insufficient to justify the prices levels quoted.
As we said in previous weeks, it will take some time until we have a clear picture about demand and prices for leather for the coming season. For the moment, we are not receiving enough good news to be positive for the rest of the year, but time will tell.
Sales this week have been acceptable. Renewals of contracts in Europe and the patchy sales of cows in Asia were enough to reach a normal number for the week. The problem remains in the lighter-weight males, which were not finding interest in Europe or Asia.
The best bid of the week was $7 below asking level which was not ambitious either. Cows and heavy bulls traded at around steady money with fractional declines here and there.
The kill: The kill remains on the low levels, as do weights, and from the perspective of hides we are now in the worst period of the year. Being at the beginning of June, with the whole holiday season ahead, one cannot be too positive about the next eight weeks.
What we expect: We are curious to see if the appetite of the Asian tanners in the coming week is going to increase. If not, it could become a long period until business picks up again and plenty of time to watch the remaining World Cup matches. It seems a bit of product still needs to be cleaned up before it can get better. However, neither suppliers nor customers see any reason to move, which should keep the market in tight ranges for some time. Bargain offers should be watched with care.
