German Perspective - 2.9.14
What happened this week: The wait is almost over. Expectations are running high and everyone is hoping to get the inside into the market direction for the coming months at the ACLE. Let's hope that we are not disappointed.
In Europe, production is slowly resuming after the summer holidays so most people are still sorting out what has to be done to return to a normal production cycle. In our region most of the focus remains automotive and other high-quality leather. Very little has been heard from the rest so far. Asia also showed very little activity. This is not a big surprise, because the number of visitors is high and with the price levels we have reached over the summer, tanners want to have a clear picture before they take decisions. The ordinary tanner would like to be backed by equivalent leather orders to cover raw material costs. So far we haven’t heard that buyers are making the necessary steps to justify the raw material prices we are discussing.
For the show this year, one should expect to get a better understanding of whether the growth in automotive tanning is going to compensate the likely reductions in upholstery and shoe uppers.
Despite stable market conditions in the retail sector, one has to believe that the high prices for leather had begun to scare producers away from the material and they have shifted to cheaper alternatives. It will be interesting to see if the general growth in spending power will generate enough additional demand to keep the volumes of leather products sold at least steady for the next season.
An absolute unknown remains politics and its influence on business. In particular, the crisis in Russia and Ukraine and the devaluation of the Russian rouble could have a negative effect on the export of leather and leather products to Russia. Other industries are beginning to feel the consequences of the economic sanctions and the tensions are certainly not good for business.
In China, many reports speak about the lower level of demand for shoe and shoe leathers, but it is still too early to judge.
General business activity in the past week was pretty slow, which was not unexpected with everybody heading for the show in Shanghai. Suppliers are pretty confident about their potential while at the same time, buyers are not really afraid if they don't buy today.
Most of the demand and the problems of margins are leading to interest for cheaper alternatives. This has made heavy cows a pretty attractive article, maybe more so than expensive males, as long as they are not needed for automotive production.
Generally it is fair to say that the spread between the raw material options is not really reflecting the demand and business.
Sales during the week have been pretty patchy and most interest was again for low grades and heavy dairy cows. All the rest was put on hold with the only exception of long-term contracts which needed to be renewed. Prices have been steady and mostly supported by the strong US dollar.
The kill: The kill continues to increase and the numbers are surprisingly high for the time of year. Weights for males were pretty low and cows are dominating the intake.
What we expect: We fail to find any serious reason why the market and prices should be much different from now until next Friday. However, that's what the shows are for: delivering the unexpected.
