German Perspective - 18.11.14
18/11/2014
For those who had been hoping for a market recovery in autumn and who have not sold enough there might start a time of storage from the end of the month, because it is unlikely that there can be a round of speculative purchasing soon, because prices seem too high to attract the few who have enough cash to invest. This even applies in Europe, where there are possibly the most attractive offers at the moment.
A lot is pointing in the direction of a period where a surplus of hides is meeting a reduced demand for leather. There might be still the hidden corners where this does not apply, but in general the statement seems to be fair. This means that the years of sellers’ paradise might have ended and marketing of hides (and skins) could become hard work again.
The good news is that we haven’t run against a wall so far - like many times before - it came slowly like the tide. That left the opportunity to reach the shore. Those still out in the water have to watch how far the water rises. The leather business has not and will never stop, but we have to deal with the change of the fundamentals. The never-ending fairy tale of supply shortage has been replaced by the problem of dwindling demand for leather and shortage of cash-flows for various reasons.
So far, all is still happening in proper order and nobody can complain. The wild card is how many hides are physically unsold and how many will be added if the demand due to the holiday season remains slow in the weeks to come.
Presently, buyers are in the driver’s seat and we can just hope that the inventory replenishment in Asia for the time after the Chinese New Year holidays will be able to absorb a good part of the hides. The situation is not a surprise and no one can be unhappy about the orderly correction of the prices. The values had been wrong before and they have been corrected, it is working pretty well so far so let’s try to keep it this way. Many other commodities haven’t been so lucky recently.
Trading and sales this week were very light. Only a few customers came by to purchase limited volumes at a fraction-lower prices. Volume bids were not seen and interest was mainly for cowhides and a few males which were bought because they still look pretty attractive versus their US counterparts. However, tanners are pretty cautious about any purchase and in particular, Asians have never been good buyers in a falling market.
Prices were a bit here and there and they can’t be called representative by the small volume. We are still getting help from the weak euro.
The kill: The weather is getting a bit more normal for the season and this has led to a bit of recovery of the slaughter numbers. However, the kill of males remains below the seasonal average while this applies for the weight of females. The numbers should be pretty steady and constant now and increase as it gets colder.
What we expect: We still fail to see anything that could stop the slowly deflating price bubble. Speculative money is still out and tanners’ demand is not enough to support prices. It is now anybody’s guess where this will lead. For the moment, it is time some of the gaps between several grades are closed. The fundamental trends remains down.
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