German Perspective - 25.04.17
25/04/2017
With the weather improving in Europe, the preferred travel season for Chinese tanners is underway. Some have already made the trip, with others scheduling theirs for May and June. It remains to be seen whether these trips are for business or pleasure.
The last few days have been exceptionally quiet in general. In Europe, activity was subdued due to the holidays. In Asia, business was pretty lacklustre, with the last two weeks showing the lowest activity since the Christmas break. This pattern is the same every year.
With the start of the second quarter of the year and the closing of the APLF exhibition in Hong Kong, tanners in Northern China switch to low season mode and withdraw from the market until July or August. In part, this is just for seasonal reasons, but it is also a reflection of the general business situation, particularly in the upholstery sector. Despite a generally busy winter season and better-than-expected conditions in the US and Chinese retail markets, tanners were not in a position to convert this into higher leather prices. The rise in hide prices in the past six months and the higher production cost means the immediate outlook is negative. Intense pollution controls in China and uncertainty over regulations in the future make it difficult for tanners to plan. So, instead, they take the opportunity to stay on the side-lines and keep raw material in stock before making any new decisions. The general strategy is pretty clear and is well organised; now is the time to squeeze raw material prices back down to profitable levels. The side effects in such a market are always the same: slow payments, rising numbers of quality complaints and, occasionally, contracts which are not respected.
Fortunately, the situation in Europe is completely different. Production of automotive and high-quality leather is running on steady levels and the demand from tanners for their regular supply is unbroken. Tanners are suffering as a result of higher production costs and increasing pressure from their clients for lower leather prices. Quality leather is in demand, but the conditions are becoming very complicated. Business this week was once again very slow and only isolated sales for low grades and some males could be concluded. Prices for males are still quite steady, while for other items there are lower prices or no sales at all.
The Kill: The kill has started to fall, but due to the exceptional cold weather it is still better than expected. There has been a serious drop in the slaughter of males. The forecast is the same for the coming weeks.
What we expect: Everything is developing as expected but we don’t yet know the full consequences. As long as the Chinese continue to play hardball and can wait to replenish their inventory, sellers will have a difficult time. It seems they have a price target close to the levels seen last September; this means there is a still a way to go in terms of prices. Males will be well supported by lower kills until the summer holidays, but tanners in Europe will soon begin to fight as a result of rising margin problems, which are becoming too much to bear.
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