German Perspective - 03.07.18
02/07/2018
The first half of 2018 has now finished and it is difficult to remember a year as bad as this one. The market has been constantly oversupplied, prices have fallen for most categories, and supply and demand has never been balanced. It took far too long for the beef industry and the suppliers of hides and skins really acknowledged that leather as a material had lost too much market share in consumer products.
What happened in the garment industry several years ago, when alternative materials wiped out the demand for nappa leather, has been repeated in the shoe and furniture industry, not to the same extent but enough to create the situation we are in today. The leather industry was unwilling to accept the situation at an early stage and instead chose to wait for a deus ex machina event to make everything better.
The industry has never been known for its proper analysis and its ability to anticipate issues and so open discussion and appropriate action never took place. It is unclear if any action could have avoided the current situation, but the ‘wait and see’ attitude has certainly not been helpful. The most positive thing we can say is that a total collapse has been avoided so far. However, we are paying the prize for significant inventories of material along the supply chain.
With the oversupply of hides in the commodity section, it has become a fight for market share between the main origins and suppliers around the globe, in particular in the key market of China. This battle is difficult for those in Europe, where the margin on beef is small and so pricing on the fifth quarter is not so flexible.
The ‘China grades’ of hides are in the main competition and have seen radical reductions in demand due to reduced leather consumption and unpredictable tanning capacity. Government policy in China and the reaction of tanners make it a totally unplannable situation for hide suppliers.
Many Chinese tanners are shifting their problems to their suppliers by only honouring contracts according to ‘situation’. This is adding to the uncertainty over the real balance between supply and demand. Nobody is sure how many hides in the books are actually going to be shipped or what their final price will be.
There was some business last week. Leather production is not at zero and there are those lucky enough to still be able to call on their regular buyers. These buyers still need hides on a regular basis; if they have no reason to change suppliers, they just fight for price. A client is more valuable than the price at present, so sales are made in private.
We heard nothing from China last week, not even replies to open negotiations from the previous week. As a result, sales were limited to Europe and to some other Asian countries. Bulls, heifers and low grades were on the sales list, with moderate reductions for bull hides and larger discounts on other. Overall, it was another week of underperformance.
The kill: The weather is hot again, which is not good news for beef. Numbers are down and the next eight weeks will remain slow.
What we expect: We continue to expect nothing. The Chinese are the key factor; they know this and are playing their cards accordingly. It is hard to see how the fundamentals will change from one week to another. All we can do is manage the situation with regular customers.
| 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 | € 1,15 |
Weak |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ n.a |
Weak |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 0,90 |
Weak | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 0,85 |
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 | € 1.65 |
Stable |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.55 |
Stable |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € n.a. |
Weak |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1.00 |
Steady |
Share this story:
