German Perspective - 25.11.14
25/11/2014
However, the general situation is one of a weaker market. Tanners are beginning to send strange messages about quality issues of material received several months ago, letters of credit and payments from Asia are in some cases a serious problem and need special attention. Even proposals for cancellations and renegotiations were seen - something that has not happened since the financial crisis of 2008.
Fortunately, these were isolated cases and a there is a good chance to improve customer selection and blacklist at an early stage. It is easy to be strict, because there are many more good customers and price differences are not really serious yet.
However, it is clear that some buyers are short of cash and they don’t consider it a big risk to walk away from certain sources and supply origins. That is even more surprising considering that EU hides are not the most expensive they will have in the purchase book.
The market is in a multilevel situation and the range of conditions is wide. Only a limited number of tanners are enjoying a good order book.
We are still impressed by the wide range of prices around the globe. Many prices cannot be justified by the value and returns one could calculate for these hides. This applies on the upside as well as on the downside of the market. Consequently one can still find reasonable options in the market under the condition that the technicians can handle the material.
In general, we fail to get a clear picture about the leather demand. We have anticipated a slowdown for a long time, but at the moment almost every customer complains about sharp reductions and even those running on standard programmes say their order intake is sharply down and their order book quickly eroding. Whether this is due to the upcoming holiday season or whether they are saying it to put more pressure on hide prices, or if it is simply true, we do not know.
In any case, activity in the main tanning centres around the globe is said to be very quiet and it is the wrong time of the year for this. One can only hope that this is only related to the upcoming Christmas season and that tanneries are taking a careful look at their end of the fiscal year stocks and are phasing productions out pretty early. Leather demand must be down. If shoe, upholstery and automotive factories were desperate to cover production for the first quarter of 2015 the situation would be much more active.
For the market this does not mean much, so far. Due to the currency situation and slow retreat of other origins, the pressure on prices is still reasonably limited. Abattoir prices have been adjusted, moderate price concessions have been made in Europe. Buyers from Asia are bidding down, but resisting gets one close to asking levels without actually achieving large numbers of sales. The slowly rising interest for bull hides from various customers is interesting, and an increasing number of tanners are experimenting with them again, with mixed success - at least for the ones who are not willing to adjust the tanning process to the different character of the hides.
The kill: We are beginning to feel the Christmas season ahead. Beef has been produced and stored for the season. The kill has improved again, remarkably the kill for cows and heifers, which is now reflecting the colder nights after the very warm October. The weights of the females are rising, finally. The kill should stay high for at least another three to four weeks.
What we expect: We are now watching the overseas origins carefully. If they can hold their levels we have no reason to change ours. If they adjust we might see problems again, because generally the market is still burdened with an excess of raw material in the medium and lower end of the price chain. So, for the next week we expect only minor variations.
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