German Perspective - 26.04.16
26/04/2016
There are still quite a number of tanneries producing at regular and steady levels, but they are still a minority. In particular in China we are dealing with a restructuring of the over-capacity that has built up in recent years; there is not enough demand today to keep all the drums rolling. The big question is how many drums really are still rolling today if production is not covered by the equivalent leather sales.
Anyway, if one does not supply the automotive industry or some niche markets we are dealing for quite a long time now with shrinking leather demand and this restructuring of the over-capacity. We have seen this situation a number of times in the past and generally it is always a painful period until everything is in balance again.
For the time being raw material suppliers can still do well if they are favoured by selling product into one of the few sectors still doing quite well. We still have a lot of brands and manufacturers that consider leather as the essential characteristic of their products and maybe this product base can one day be expanded.
For the moment however we are suffering from the fact that leather is a material than can and has been substituted by alternatives. The expansion of consumer product consumption which many people consider to be the safety-net for raw material requirements and prices is not favouring the market at the moment. Production costs, effluent and pollution issues, manufacturing and price have become very serious problems for leather as a material. However, everything still runs in cycles and the industry will not just surrender and stop its activities. This remains a classic case of survival of the fittest and new ideas will also bring new success. Consequently we just have to ride the waves and avoid drowning.
For the moment we are in a typical situation at the beginning of the second quarter with falling leather demand and the massive pressure on leather prices. This normally lays the basis for a market correction, which many players have been trying to ignore for quite some time. While the market for heavy and high-quality material continues to be in balance, all other articles face serious headwinds and this applies in particular to females such as heifers and dairy cows. The sharp decline in demand from China leaves quite a bit of raw material without a home at present and so a lot of hides around the globe of certain weights and qualities remain unsold.
Question is: would price corrections really stimulate demand in the short term? It is true that tanners always need to replenish their inventory sooner or later. However, it seems that the strong purchasing activity seen from October to January has created enough stock in China to meet the present demand for leather, if not full production capacity. With limited confidence in demand, tanners in China are more focused on liquidating stocks rather than replenishing them.
The kill: The kill is reasonably steady. The good news is that there is a shift towards more males and fewer dairy cows in the mix. Cattle are just about to return to the fields, which could bring a final wave of cow slaughter before the traditional decline decline for the summer season.
What we expect: The market is still waiting to sort itself out and still needs to find a real balance. We continue to believe that the second quarter is always problematic and there are many negative influences: public holidays, low season for using leather, weather and so on. Since the stocks tanners hold are not high, market activity in the coming weeks will tell us a lot about the real volume of leather demand around the globe.
| 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 | € 2,30 |
Weak |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1.85 |
Weak |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1.90 |
Weak |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1,60 |
Weak | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,55 |
Soft | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,95 |
Weak |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1.95 |
Soft |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.85 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1,35 |
Weak |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.35 |
Soft |
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