German Perspective - 16.05.17
16/05/2017
The kill and the demand from the leather industry do not match. In times of normal and regular demand, the volume of hides required by automotive tanners matches the kill. At this time of year, however, the kill always falls rapidly due to a lack of beef demand. With just-in-time supplies of raw materials, tanners are no longer holding any buffer stocks and many are neither willing nor able to hold safety stocks in salted to last the period until the summer holidays. The consequence is the same again; the beef industry is quickly recognising the situation and asking higher prices for males. It is also using the situation to gain time for the necessary adjustment of females and low grades. This means he have seen a carbon copy of the market situation from last year, when it took until October to adjust prices to the market levels that had been a reality from June onward.
In the end, it means sellers are simply smarter than buyers. The gap in the valuation of non-premium hides and the global alternatives continues to rise, although this has nothing to do with the real market situation and the value of the material. All of this makes the lives of the European hide industry increasingly difficult. If the abattoir prices are not adequately adjusted, it could become another long and expensive summer.
Another big problem is the total stagnation of business in Asia. Without any business of real volume there is no reference for prices apart from the usual daily gossip. Apart from the same stories and prices that circulate the trade every week, there is very little on which to base any serious and reliable price valuation. This means another difficult period in which individual positions dominate. Some have a large exposure in Asia, some have older and more expensive contracts to ship, some are scared that the more expensive contracts will not be honoured or will have to be re-negotiated, and some may have a favourable currency position. All these factors are influencing the decisions of industry players, with those with a positive position taking a more aggressive approach with the abattoirs, independent of the real market situation and outlook.
There is no question that the hides that are sold to a larger extent to overseas market will have to find a new valuation. In view of the transportation charges, currency levels, lower hide weights and the adjustments made in other regions, it is clear the price levels of the first quarter need to be adjusted. With the recovery of prices in competing regions, the market share of European hides in Asia is falling. This is on top of the general declining summer demand. Sales this week were once again limited to ‘gap-fillers’ in Europe. The few bids from Asia, mainly for low grades, were way too low to be considered and there was no way for a compromise as buyers stayed firm to their low price ideas.
The kill: The kill is on seasonally low levels. Despite some ups and down, the numbers and weights will remain low until the end of the summer.
What we expect: We could have copied our statement from last week. The market for standard hides has once again run into a dead end and needs to find the emergency exit to get back on the right road. The paralysis will continue until the Asian tanners come back to replenish their stocks or until abattoir prices are adjusted sufficiently to allow serious discussions about sales to take place. This will be needed to regain some of the basic demand during the slow summer period.
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