German Perspective - 04.11.14 - leatherbiz: Lea Leatherbiz

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German Perspective - 04.11.14

04/11/2014
What happened this week: Another peculiar week. We would assume that most players started the week in expectation of further price declines. The market opened slowly with little activity and it was a pretty decent surprise when many people realised that some of the big players in the US had put their asking prices up by quite a bit. The justifications mentioned were rising cattle prices and increasing losses in the beef business. Many, including us, were trying to figure out where and when a relation between these factors had been created recently.

Whatever, for those who are tightly connected to these hides, the situation had become pretty strange. How do you negotiate with suppliers who are moving in an entirely different direction to the general market? We have no idea what finally happened and how the buyers reacted. It should have made our selling much easier and we were a bit worried about how to deal with the expected wave of new and interested buyers, but funnily enough we have not seen any inflated interest or demand for our hides, so far at least. We could not trace any fundamental changes in the market so far and generally not too much notice was paid in the past days.

Enough has been said already about hide prices and the consequences for leather demand over the past months. We find it most worrying that we are at the end of November and there is nothing of the usual activity one expects for this time of the year. The big players run their course and it’s pretty much business as usual. They struggle to get out of the strangle-hold of their core materials and are at odds with their inflexibility to switch and and use alternatives quickly. This has become pretty common in the industrial world these days.

The rest of the leather industry seems to struggle more from the lack of sufficient orders and from negative margins. One of the main reasons is that the business today has become more specific than ever before. Some articles or selections run well, but what to do with the others? Purchasing semi-finished articles in selections is only part of the answer, because this shifts the problem but doesn’t solve it. Nor does it fill the beamhouse, if you have one.

In the end we still think that the full leather business is out of balance and, with a decline in demand, the misfits are slowly moving to the surface. Anyone who believes in a short-term recovery in leather demand should not worry: demand will sort everything out. Others will slowly have to begin to think about consequences, solutions and exit strategies. We have still the advantage of our hides being rather on the low side of the price spectrum, which fortunately limits risk at the moment and offers the opportunity to sell and, even more importantly, to ship. Letters of credit from China are coming at the very last moment; it remains unclear if this is a cash-flow problem or the financial situation of the banks because there are lots of rumours of Chinese banks suffering from a lot of bad loans at the moment. We have always thought that the money side of the game would be decisive eventually.

Sales and trading this week were again reasonably quiet. Asian interest was mainly concentrated on dairy cows and there was a wide spread of prices, from miles down to about steady. A small, regular customer base continued to buy at prices a fraction lower. Sales in Europe were limited to some renewal of fresh and regular programmes. Buyers are actually trying to buy the minimum just to keep their productions afloat and this supports the core and reliable suppliers and leaves excessive material from non-regular suppliers struggling.

The kill: The kill continues to run at high levels. In particular, heavy males are coming in at pretty high seasonal numbers and make fresh supply chains easy to serve. Weights for cows remain pretty low for the time of the year. EU beef has become far more competitive and we expect the kill to continue to run high.

What we expect: Standard hides will continue to move with moderate price concessions. The core leather business continues with the margin problems that everyone knows about. However, inflated demand is gone and not all material is being absorbed, which forces the industry to new price structures that might be different from the past. We believe the price pressure will remain in place.

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 € 2,35
 Weakening
25/29,5 kg 27,5/28,5 kg 22/27 kg 25/26 kg € 2,10
 Steady

Dairy cows

15/24,5 kg

22,5/23,5 kg

13/22 kg

20/21 kg

€ 2,30

 Weakening

25/29,5 kg

27,5/28,5 kg

22/27 kg

25/26 kg

€ 2.00

Steady

30/+ kg

33,5/35,5 kg

27/+ kg

29/31 kg

€ 1,85

 Steady
Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 2,25
 Weakening
30/39,5 kg 36,0/37,0 kg 24/34 kg 31/33 kg € 2,30
 Weakening
40/+ kg 45,0/48,0 kg 34/+ kg 38/40 kg € 2,10
 Weakening
Thirds 15/+ kg 25,0/27,5 kg 13/+ kg 24/26 kg € 1,80
 Steady
Thirds bulls 30/+ kg 38,0/40,0 kg 24/+ kg 33/36 kg € 1,75
 Steady


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