German Perspective - 01.12.15
01/12/2015
All of this has brought some relief but so far no real confidence that the situation in the leather industry is fundamentally improving. There is still almost no demand for lower grades, the split market remains dramatic and nobody knows yet what effect the fear of terror around the globe will have. Tourism and Christmas shopping of overseas tourists in Europe will certainly be down.
Another big question mark hangs over the automotive market. Now also the bigger diesel engines of the VW group are under attack and tests on other brands in Europe have also delivered worrying results.This might not change very much in terms of what cars people buy, but it may cause some delay in their decisions. If one looks at the discount offers and cash rebates for cars in Europe, one must have the impression that some of the negative rumours about sales will carry some truth in them. The question is just how the industry is going to deal with it. In China car sales were boosted by a cut in sales tax, but this applied to cars with engines of less then 1.6 litres, which are not really the famous ones for using leather. For the time being the US market is still the bright spot while many others are certainly not painting a bright picture and where more cars are sold compared to a year ago it is where the level of sales has been very low in recent years.
A sudden change in the weather conditions in Europe may have come early enough to stimulate sales of winter shoes and apparel, which should help leather consumption. So, we have to be cautious about the present stable demand being sustained. We should not forget that presently we are thriving again only in some areas, favourable to us here in Europe, such as the currency factor and the escape of tanners towards better-quality raw material and leather. However, it would be impossible to find one single tanning company that could confirm it is booking contracts at steady or higher leather prices. Quite the reverse: most are complaining heavily about a fierce battle over prices, which normally ends in declines in price rather than anything else.
Consequently, any expectations of higher raw material prices are dangerous. Leather demand as well as prices do no offer much room for manoeuvre in the coming leather season. What will happen to all the low-quality and low-price stock remains unclear too. Trade and interest were pretty slow last week. This might be related to the Thanksgiving holiday in the US, which also took some Asian activity away. There was still some patchy interest in cows from the usual suspects while EU interest seems to be satisfied well into the New Year. Prices for cows are steady with the help of the currency rate, while males remain under a little pressure with prices eroding a fraction week by week. We would call trading activity this past week below standard.
The kill: A change in weather conditions has finally triggered the higher kill we have been long expecting. Weights are going up and have now reached what one would consider to be normal for this time of the year. Production should remain high until Christmas.
What we expect: The market has finally entered a pretty stable, narrow range. This is possibly the best of all options and it might be best if this could persist for a while. However, stable markets might be in the interest of tanners and producers, but traders don’t like stability and prefer ups and downs. Let see who achieves the upper hand.
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