German Perspective - 25.10.16
25/10/2016
During the last week many car brands went public with a cautious outlook about their levels of business. This is not really unusual when car sales are slowing. Management teams have the results for the third quarter and have collected enough data to have a clear picture of what their full-year results are likely to be and they will be starting to prepare their messages to investors for the next financial year. Nobody knows what 2017 will really deliver, but the writing is on the wall that the car industry does not expect to reach the same levels of production in the coming year as in the record times it has experienced recently.
Slowly, optimism is beginning to fade and markets are picking up on the indirect pre-warnings. The effluent problems in northern Italy continue to dominate discussions and apart from some rainfall, which has eased the water problems a bit, no long-term easing of the situation is in sight. Tanners are now trying to avoid salted hides as much as they can.
After a certain flurry of interest around the September edition of Lineapelle in Milan, interest in finished leather has again diminished and there are many voices complaining about the volume of leather orders at the moment. If true, this would be really bad news at this time of the year.
Business in Asia been generally quite sluggish over the past few months but it is the only market that is showing some kind of normality. Upholstery tanners seem to have received orders and having waited so long, they need now to replenish inventories. The firmer US dollar and the price correction at slaughterhouses for cows have at least created a certain baseline for this material. However, interest and activity is a bit on-and-off at the moment. One day interest and bids are plentiful and the next day it is totally dead again and one regrets every past ‘no’.
In the end everything is about price. If one can match the ideas, sales can be generated. Otherwise, it’s difficult. So far the interest from Asia has not yet reached the market for males. Just taking the numbers, EU hides should be attractively priced, but the bids coming in are so low that they cannot be considered. They are between 5% and 10% too low and leave no room for serious negotiation, even with the firmer dollar.
The spread of prices no longer reflects the situation in the markets for finished leather; we need major re-adjustments to bring the prices back into line with the realities of the market to restore a sustained demand for leather again. The biggest problem today is the constant pressure on leather prices. One can hardly speak to any tanner today who is not reporting falling prices and rigid positions of leather buyers. The price pressure on leather is the biggest threat to the raw material market.
Sales during the week were mixed. In total, the numbers for female material were all right. Sales for males were not sufficient, with very low numbers.
The kill: We are in the killing season and the numbers continue to rise. The kill is still dominated by females. Dairy cows and heifers are coming in in large numbers, but weights are far below the normal levels for this time of the year. Males are normal in weight, but low in number.
What we expect: The next weeks will be interesting if Asian tanners continue to replenish inventory and if upholstery demand continues. In general we continue to believe that the price structure has to be adjusted. A number of grades are far too expensive to match today’s leather prices and this means that eventually further adjustments are inevitable for several European hides types. However, this is not an overnight process.
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 | € 2,20 |
Weak |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1.50 |
Stabilizing |
|
|
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 |
€ 1,40 |
Steady | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,35 |
Steady | |
| 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 |
Weakish |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.80 |
Steady |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1,15 |
Stabilizing |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.25 |
Steady |
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