German Perspective - 14.04.15
14/04/2015
This is not much of a surprise because the negative impression many took home from Hong Kong spread quickly so it is difficult to convince buyers that now is the right time to buy. In contrast to last year when everyone was desperate not to miss the chance to secure raw material, causing the market to soar, it is now the exact opposite; everybody believes that waiting is a better option than trying to catch a falling knife.
Nothing is as black and white as it seems. In some parts of the world and for some tanners the situation is still pretty normal and their productions are running regularly. The leather market however is diverging more and more into ‘premium’ and ‘commodity’ segments. While the premium end is still holding up reasonably well, the decline in demand at the commodity end, which we expected last year, is now in full swing. A combination of reduced demand in general and less leather being used in many shoes and accessories has reduced production needs and made inventories last much longer.
This usually hits the semi-finished markets first because wet blue and crust stocks are used up first in the tannery and you buy less semi-finished material to supplement demand and production. Beamhouses are kept running as long as possible and all product demand that needs to be satisfied is fed, as far as possible, from the tanner’s own soaking capacity or from inventory. To reduce stock wherever possible is the policy. In such a scenario the supply chain begins to fill up. This begins with the most costly material, that is the one with the lowest contribution to margin, not necessarily the most expensive one. At this time, this has hit sheep, lamb, goats and splits first and is beginning now to spill into the bovine section, where relatively expensive materials will face the issue first.
In the first quarter the market is traditionally kept steady with most productions running at increased levels. As soon as the first quarter ends and the temperatures begin to rise the leather season starts to slow down and so does business activity.
Lower slaughter in Europe is holding abattoir prices higher than they should be and we can just be grateful for the currency situation, which is protecting us against the pain. Anyway, business has been pretty quiet this week, but the biggest challenge is still to get timely letters of credit to keep shipping plans and throughput intact. Finance is still a major issue in China and one should never forget that the business is only done when the money is in the account. This is something that seems to be quickly forgotten in the good times.
Shipments from the US have resumed and are beginning to be regular again. This is not only filling the inventories, but also emptying bank accounts. Other tough challenges are being presented by reduced split returns and shrinking turnover due to the low leather season. Sales and interest were almost zero from China this past week. Some bits and pieces went into less known markets and so just the regular sales in Europe were left. Prices for the little that was sold were almost steady towards the end of the week with the help of the US dollar. At the beginning of the week they were barely steady, but the small volume cannot be taken as a serious reflection of the real price structure.
The kill: Numbers were pretty much down and the end of the milk quota means farmers are holding cows back to milk them instead of slaughtering them. Weights are beginning to fall too. Low numbers will continue to dominate now.
What we expect: We are now entering the difficult time of the year. Kill and weights go down and so does leather demand. A number of holidays in May are nice for the workforce and bad for business. It seems that this coming next week is going to be more about hand-to-mouth business. We fail to see were more demand could come from right now, with no customers leaving the impression that additional demand is in the offing. As far as prices are concerned we are still competitive due to the exchange rate, but have to watch now how quickly and far competing origins fall.
| 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 |
Soft |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 2,10 |
Soft |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 2,40 |
Weaker |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 2.10 |
Weaker | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,90 |
Soft | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2,25 |
Weaker |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 2,20 |
Soft |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 2,05 |
Soft |
|
| 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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