German Perspective - 24.03.15
24/03/2015
What happened this week: Those who were expecting the euro to reach parity with the US dollar were disappointed this week. The euro found a bottom and was swinging upwards with every little piece of news that could be interpreted positively for the Eurozone. However, the currency is rather swinging around and has no clear direction yet. As far as the hide and leather business is concerned we continue to be in a stalemate. Although leather demand is down, cash-flow issues are becoming more dominant again and buyers and sellers are not willing to let the market move in a clear direction. However, those expecting a firmer market are fading while those who are negative in private are not willing to make public their opinions for the obvious reason.
This means that the general excuse for not acting is the upcoming APLF exhibition in Hong Kong (March 30-April1), which is quoted all over to be the one and only target and time when the next market move and trend is going to be determined. This is, at least for those who are a bit longer in the business, a serious warning. Has this particular fair ever changed the demand for leather? Not really, and we know already that leather demand is far below the levels of a year ago, and so are expectations.
What worries us most is the poor performance of the split market. This is not only bad for the calculations of tanners, but is also a signal that leather demand on the whole is far from being good; at the economical end of the market, leather substitutes have gained a lot of market. One should just have a look at the spring arrivals in the shops where in the lower-price category only leather substitutes are seen in men’s, ladies’ and children’s shoes. The same applies to fast fashion and handbags and other leather-related consumer products. The price discussion is ongoing and it applies not only to the low end; it is also pretty common at the higher end too and this can easily be demonstrated by the sharp drop in calfskin prices.
Leather prices are under fire, split returns are down and the volume of consumer business is down for a number of reasons. Drums still have to filled, and automotive is good in volume, while the firmer US dollar has camouflaged this trend in some markets.
We have to deal with the fact that the negative news is outweighing the positive news at the end of the first quarter and before APLF begins. It is pretty obvious that the market needs a new balance. It is also true that a sharp correction and cheaper prices alone would not be of much help either. It would barely increase leather demand in the short term and would at this stage cause more damage than help. This does not protect us from the fact that the market has to find a new valuation for the coming seasons and here opinions on what the level should be are drifting further and further apart.
The wishful dream is that leather demand will rise quickly, prices will find a quick bottom and we can settle down in April until the end of the summer. Hope is fading fast and the question is how to prepare if it doesn’t work out like this.
Trading activity this week was again moderate. Fortunately we still have a currency advantage and this means we always have a chance. We would say that prices in US dollars are down by 2%-3% and up by 2%-3% in euro over the past weeks, so that the gap between prices is closing quickly. The question is if the prices in US dollars are falling faster than the prices in euro are rising and this is pretty likely, because to get higher prices in euro is a hell of a job; selling hides has become real work again. It is a bit different from what has been for quite a long time.
The kill: Nothing really important as far as the kill was concerned. As low as one could expect for the time of the year, but actually we would not say that the numbers are too bad for March.
What do we expect: The ‘wait-and-see’ will continue. Buyers have begun to see rising chances to push prices lower while sellers are not willing to surrender. European exporters have more room to negotiate than others and they might use the opportunities to protect their positions if business does not pick up substantially pretty soon. For the moment it might be the better deal to keep warehouses clean and shipments current rather than to play on time and to hope for a quick recovery.
| 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 |
Steady |
| 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 |
€ 2,40 |
Steady |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 2.10 |
Steady | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,90 |
Steady | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2,25 |
Steady |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 2,20 |
Steady |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 2,05 |
Steady |
|
| 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 | € 1,80 |
Steady |
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