German Perspective - 19.07.16
19/07/2016
We have two big markets that are now, for different reasons, slowly winding down: Europe, because of the holidays, and Asia, because of the general decline in demand and the global summer break. In China we are facing another round of environmental issues. The government has closed many tanneries in Hebei province for pollution problems and this will last at least until mid-August. If these closures really are because of pollution or are the result of an economic decision to reduce output is a subject that is also under discussion. Whatever the reason, it has had a negative influence on the raw material requirements of tanners in China.
At least for most EU suppliers the demand from China in the second quarter of 2016 has been far below normal. This applies mostly to dairy cows, but also other hide types have been affected. It is definitely true that European suppliers have not been able to generate the same volume of sales in China as their rivals in the US. Price difference cannot be the main reason because with the officially quoted prices from the US going up, European hides have never really been ‘out of the market’ and there has been plenty of confidence in the European hide trade. But the performance of European hides has been weak since the Chinese New Year holiday in February.
Most pundits explain this with the fact that EU hides are not the core source of supply for the large industrial productions like automotive and shoe production for the international brands and had consequently not been a preferred option for producers. However, there are also voices that are questioning the official figures and have raised the suspicion that numbers can also be adjusted to support the prices and marketing strategies of the sellers. It is not a secret that many large producers are not very flexible in their raw material mix and the spread of prices and real value of hides is wider than ever before.
Traditionally dairy cows have been the main product from the EU for tanners in China and the weak performance of the upholstery business, in combination with pollution problems as well as cash-flow issues, has made it quite difficult to hold sales and prices stable. This has made the performance of the prices at the abattoirs in the past months even more surprising. Prices, despite falling average weights, the upcoming holidays and the weak performance of the largest market, have barely changed and do not reflect the market realities. However, it seems that politics are more important than market facts and so one has to deal with the facts.
Sales were just coincidental this week except for the standard performers. Heavy and high-quality hides are selling as they come in and as long as the premium cars continue to sell the way they are this will not change. It will become clear after the holidays if the general global issues are eventually going to have an impact or if the zero-interest policy will continue to support the market. As already mentioned above, China is still the weak performer and this will keep pressure on the cow market over the summer. Nothing suggests that in the coming weeks the demand for leather, and consequently for hides, is going to increase at all.
The kill: The kill continues to be low. Summer holidays and weak demand for beef hold numbers down. We expect however a higher kill for cows for some time because of a desire to reduce milk supply to fight against the very low prices for milk and to support farmers. However, until final decision are taken farmers will not bring their cows to market.
What we expect: We continue to believe that prices for males will hold steady due to steady demand and low kill. The situation for the rest of the market is different and we believe that prices for cows and heifers will face headwinds.
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 | € 1.80 |
Weak |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1.70 |
Weak |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 1,45 |
Weakish | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,40 |
Weakish | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,90 |
Weak |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1.90 |
Steady |
|
| 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 | € 1,30 |
Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.30 |
Steady |
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