German Perspective – 29.05.18
29/05/2018
The world is divided into mass production, with continuous oversupply, and a luxury sector where the price of the finished product doesn’t matter as long as the wealthy are offered what they want. The add-on is the automotive sector, where leather is generating image, added value and extra margin.
Apart from the general decline of leather demand, the situation is also worsened by the structural changes and problems in the Chinese tanning industry. For too long the overcapacity has been camouflaged; if one looks into the details, it is clear that this problem goes back four or five years.
As European suppliers we can be happy that we still have a decent amount of production which is unaffected by these problems. This is why the general market has had two totally different market segments for a while now.
The European quality tanners continue to enjoy a stable and regular order situation. There are complaints as usual, with the general calculations suffering from the problems in the lower selections, but overall the tanners that have done their homework are doing quite well. So far not a single one has reduced their production or their demand for raw material.
We see the complete opposite in the mass production markets in Northern China. Many of the players there are managing their business poorly; they appear to be raw material market gamblers rather than professional tanners. The majority do not buy hides on the basis of regular leather business, rather on a gamble that there will be a buyer for them, regardless of their state.
With returns such as leather and split prices negative, demand tumbling, government restrictions hindering operations and production costs climbing, we are now seeing the same brutal selection of the fittest in China that we have seen in other countries.
It is bad that hide suppliers were unwilling to accept this and that buyers in China were not realistically analysing their real business and market potential. The consequence of this was that they continued to buy hides they didn’t need in a falling market. They did so in the knowledge that when the market, demand or prices did not meet their expectations, they would simply walk away from their contracts, with barely any sanctions.
In a market situation like this, all one can do is follow the good clients that still exist. They cannot absorb all the hides that need to be sold, however, and so the cycle continues.
Business this week was the same as in many previous weeks. Regular programmes with European tanners were renewed and prices remained fairly steady, although with a minor downward correction. There was also an inquiry from China. The weak Euro might be a way to find a price agreement.
The bidders were mostly the well-known bottom fishers who placed bids with suppliers free of any pending contract issues. In the end, the ideas were not serious and were far too low to be accepted. We understand that many European suppliers are not even bothering to send their regular offers. Tanners in China will eventually have to replenish their stocks, but the game of waiting until the bottom is hit remains.
The kill: We are now entering the period of the lowest kill and the lightest weights. Cattle are in the fields and beef consumption will not be great due to the temperature.
What we expect: As bad as the situation might be, buyers will one day have to get back into the market. At the moment, they still have time until the new season starts. As usual, the Chinese tanners are waiting as a group and will buy as one. Lowering prices does not result in more hide sales, so we have to wait.
| 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 |
Stable |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1.65 |
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 | € 0,70 |
Weak |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.00 |
Steady |
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