German Perspective - 25.07.17 - leatherbiz: Lea Leatherbiz

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German Perspective - 25.07.17

25/07/2017
What happened this week: We have been critical of the assumption among most of the European suppliers that things could just remain static over the summer and that everybody could go on holiday with a guarantee that nothing will have changed when they return to their desks. Week by week it is becoming more clear that this is an arrogant and possibly also a dangerous position. The latest statement from European Central Bank president, Mario Draghi, as well as the economic data published in the US have triggered new strength in the euro. Currency exchange rates, which worked in our favour until the end of 2016, are now turning against us and hitting revenues pretty hard.

Currency alone has made hides from the Eurozone approximately 10% less competitive than six months ago. Summer hides are also significantly lighter and wherever the raw material is valued on a per piece basis, this adds another 5% to the calculation. This in combination means a 15% decline in revenues without even considering the general market trend of origins that are competing with our hides. One just has to look at the price trends in the Americas and everybody should be aware what this means for the competitiveness of European hides.

For most, this fundamental problem has been camouflaged by the strong performance of heavy and good-quality hides, which has made quite a number of players forget that the market is far bigger than this segment.

In our opinion the big mistake is that the beef industry continues to generalise market conditions and this means that they just look at it from the top. Good and heavy hides are selling well and have not reacted so far to the general global price trends for standard raw materials. The question is about how much everything is still connected these days. In our opinion a lot of connections are not working any more and this has been the case for some time.

The situation is hitting dairy cow hides and light- and medium-weight heifers and males the most. These categories obviously represent completely different markets and different regions of Europe. With the EU network of large packer groups, benchmarking is always made from the top down and the regions and packers with lower value material take high-value productions as a reference. The market sorts all this out in the end, but the real problem is that it takes too long.

The next deal is the one that counts. To cut a long story short we are creating tensions that are not likely to be eased by recovery in other markets and we just have to be careful not to create an island and lose connections to the mainland.

Business and sales were once again in holiday mood. The premium- and low-grade sections were the ones with some sales and activity while the rest was mostly inexistent. The US dollar lost further ground, which made negotiations and sales in Asia difficult. The shoe leather business is reported to be very slow and more tanners are beginning to shift into upholstery leather production. This is reflected in the price structure of hides. Dairy cow prices in relation to heifers are holding up much better against the trend so far.

The kill: All regions have begun their school holidays now and this has been reflected in another sharp decline in slaughter. The coming three weeks will be the lowest kill of the year and fortunately the tanning industry in Europe is on holiday. So, for the next weeks it means still: low kill, low hide weights.

What do we expect: The time until mid-August or possibly until the All China Leather Exhibition in Shanghai (August 30-September 1) could now become pretty tricky. General demand for hides is not sufficient to clean up production, niches and high-end, as usual, excluded. Whether it is really only price that matters is open to question now. The only really positive factor in the equation is the fact that the slow season ends in mid-September and at least basic production will recover; cheaper hides are generally also always better for the tanning industry.

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
 Weakish
25/29,5 kg 27,5/28,5 kg 22/27 kg 25/26 kg € 1.50
 Weakish

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

 Weakish

30/+ kg

33,5/35,5 kg

27/+ kg

29/31 kg

€ 1,35

 Weakish
Bulls 25/29,5 kg 27,5/28,5 kg 22/ 27 kg 25/26 kg € 1,90
 Weakish
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 € 1,15
 Steady
Thirds bulls 30/+ kg 38,0/40,0 kg 24/+ kg 33/36 kg € 1.25
 Steady


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