German Perspective - 9.9.14
09/09/2014
The first hours of the show were determined by great ambitions and activity, but by lunchtime quite a number of suppliers began to become disappointed, because the halls used for raw materials and international tanners were far less populated than expected. Wider aisles and uncovered edges were noted. In addition, many may have still been spoiled by last year’s event when a big wave of buyers from Hebei conquered the show on the first day and bought almost the entire stock in the first few hours.
This year was not the same, which disappointed many, but we would call it the return to normal. Buyers were concerned about the high raw material prices and the reduced returns for splits. Everybody tried to work out the supply levels and whether the situation is really as problematic as it has been made out to be.
It became clear that the supply problem is rather isolated for specific hide types and sectors. It was never a secret that the automotive sector is performing very well and the order books are full. If there is any worry it is only about the geopolitical situation, but so far car sales and production plans have been untouched.
Producers are in need of raw material and they are only checking if they could possibly optimise their raw material programmes to escape from the high prices for their preferred standard materials. Some are already changing and others are actively testing.
Shoe and upholstery tanners, who are suffering from margin and cashflow problems, are trying to find cheaper alternatives. The tanners in China are looking for articles with higher added value. The rise of production costs in China worries many and solutions will have to be found if leather buyers are not willing to adjust their leather prices upwards again.
We could not find any indication that leather demand in general is bad or high inventory would allow tanners to withdraw from the raw material market for long, but leather prices have their limits and substitution is an option for many shoe and upholstery brands if the price rises too high. Even the boom in automotive cannot compensate for the problems in the other sectors.
The European suppliers seem to have the least problems - in particular for cows and low grades - because they are still the cheaper alternative due to the US dollar. We don’t know what the sales of others were, but most we spoke with were not too happy. For us it was normal; the regular buyers did not let us down and, with some concessions on prices, even the difficult items such as light males could be moved. With the higher US dollar, euro value returns could be kept stable and shipments will continue regularly in September.
The kill: The kill was higher this week and this comes a bit earlier than expected. Weights are not yet on the rise. There are many indications for pretty good slaughter numbers for the rest of the year and if weights are going up too, this would be good news.
What we expect: A lot will now depend on abattoir buying. Higher prices would make sales difficult again. It seems that tanners have covered what they need for the short term and will quickly disappear when higher levels are asked, but in general we don’t think too much will happen in the short term. Without the firmer USD there would be serious pressure on the market here, but now it might be called weak/steady.
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