German Perspective – 01.05.18
01/05/2018
The situation continues to deteriorate. This mainly relates to the situation in Asia, where most of the problems are originating. The combination of shrinking demand for leather and shrinking tanning capacity is creating a growing imbalance between the supply and demand of specific raw material types. The main problem continues to be the fact that nobody can find the key to changing the trend or can offer a convincing idea for how the demand for specific leathers can be reactivated. The trade simply continues to discuss the same old questions and displays the usual perception that what goes down must also go up again. This might be true, but time is also an important factor in this business.
The beef industry has to get rid of hides and skins every day. The historical system was for this raw material to end up in a tannery with a view to eventually becoming leather. Since supply and demand are never exactly synchronised, particularly in this industry, it is normal to have falling and rising prices and higher or lower inventories across the supply chain. However, there was always the logic that lower prices would trigger more demand and that every hide produced would eventually become leather. This has always been considered an unwritten trade law and has never been in question.
There have been many occasions in the past when prices were far lower than they are today. The last time was around the financial crisis of 2008 when international trade came to a temporary standstill and prices fell to levels far below the ones being experienced now. At the time, China took a chance and fed its factories with low-price commodities, confident that the finished products would find a market.
Ten years later, the situation is completely different. Although official price lists show levels which are far higher, there is no demand for low-grade hides and this makes any price quotes very questionable. The market is also missing speculative demand. The big rounds of purchases we have seen in the past 12 months have not stabilised prices. With the declining demand for leather, the only thing changing was who owned the material. It is still there because the intended leather production was not completed, or the finished product was not sold.
While the European product flow of hides into the premium industry continues to be intact and the market remains stable, the congestion of commodity materials has worsened. There were further reports of re-sales and stranded containers of cows looking for buyers. Tanners in Northern China who bought hides in February/March in the expectation of better leather orders have realised they were expensive and have decided they don’t really need them. In the long-term, the question is when these hides will be needed and when the overhanging stocks can be cleared.
As far as trading was concerned, last week was once again very quiet. In Europe, what needs to be done is being done. New business from Asia is only possible at very low prices and/or is far from being safe. While in Europe the heavy premium material continues to be sold within narrow prices ranges, it is almost impossible to quote serious prices levels for cows in Asia.
The kill: The kill is low. We are heading into May, which means weights and numbers are falling as temperatures rise. This will not change in the coming weeks. The biggest problem is the falling weights.
What we expect: This week is set to be a short and not very busy one. Holidays in Europe and China will likely result in a quiet time. There is no indication of immediate demand for hides. With barely anyone expecting a market turnaround, waiting seems to be the preferred option, regardless of whether you need materials or not. We need to wait and see what the sellers’ strategies will be.
| 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 | € 2,10 |
Stable |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,20 |
Weak |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 1.20 |
Weak |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 0,95 |
Weak | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 0,90 |
Weak | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,70 |
Weak |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1.70 |
Stable |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.60 |
Stable |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 0,85 |
Weak |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.00 |
Steady |
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