German Perspective—23.05.17
23/05/2017
This year we are in the same situation, although some parameters have changed compared to May 2016. Leather as a material is in retreat for many reasons and the volume of consumption is declining. The global supply of raw material has not declined during this period. China, the biggest region for production, has tightened its policies and many tanners had to close or reduce production. Less competition should have allowed the rest of the industry to strengthen its position and to adjust (increase) leather prices, but this didn’t happen. At the same time, the cost of chemicals, transportation, labour, affluent treatment and waste management rose. On the revenue side split return declined, with falling split prices in most cases. It is obvious that the conditions in the leather industry haven’t improved compared to last year.
Once again, the situation is not the same for everyone. Raw material prices increased from September 2016 to March 2017, but have since entered a period of correction. If we assume that most tanners begin their planning for the coming season at inferior price conditions, it is difficult to understand why the European beef industry continues to fight against the inevitable; the only thing this achieves is a loss of global market share. Competing regions began adjusting prices in April and the euro, which has gained more than 5% since then, cannot be ignored either.
It is not difficult to come to a fair market valuation of the various hide types, nor is it difficult to realise that some grades live their own life, such as those only available locally and with reduced supply (heavy bulls) or materials that have global competition and are being priced way out of the market (cows, heifers and lighter weight bulls). If the strategy of last year is copied it will become another expensive summer waiting for better conditions and only accepting the reality in autumn.
Business this week was once again limited to gap fillers and the regular programmes in Europe. In Asia, one can see the usual checking of offers to see when the first seller blinks. We don’t think that the general balance of supply and demand will change, but buyers in Asia would be willing to book some business for cows at 10% below the current abattoir level, which can’t be accepted due to the situation in the currency market. Very few hides were sold last week and it will be interesting to monitor how the sellers decide to deal with the situation in the coming four to six weeks.
The kill: The kill is low and this will not change for the next few weeks. A national holiday on May 25 followed by one in the first week of June will keep numbers low. Weights continue to fall as well.
What we expect: One day we will escape the stalemate we have had for many weeks. European business is running as normal, but will be challenged from now on by the arrival of hides from overseas and their much more attractive prices. Asian tanners are now waiting for the right prices before they replenish their stocks. It is unclear when this will happen, but it is clear that cow and heifer prices will have to be adjusted in order to be an attractive alternative to the raw materials available from other parts of the world.
Share this story:
