German Perspective – 10.07.18
10/07/2018
Several tanners in Europe have already started their holidays and others are starting to prepare for their break. The global situation, in particular the threat of an escalation of the trade war, is weighing heavily on general sentiment. Even those not directly affected by it are aware that it could eventually have a major impact on consumer confidence and business. It is also a good excuse for those not clear about demand to postpone their decisions and actions.
We are hearing the same complaints from China; if it’s not the environmental controls, it’s the currency depreciation, or the uncertainty about leather orders for the rest of the year. What unifies everybody is the general conviction that the current high prices will only fall. Why buy now when you are absolutely sure that the next deal will be cheaper?
We believe that most of the trade has already surrendered and that just a few slaughterhouses and isolated segments of supply still feel they can find victims and blackmail them with prices. This is a short-sighted position and strategy.
Fortunately, there are still a few strong performing market segments, namely high-quality automotive leather and specialties in shoes, leathergoods and upholstery. This demand is mostly covered by European hide suppliers and it still offers a decent amount of business despite the struggles of the general industry.
The low kill, in particular for heavier hides, is also helping. Prices have seen minor adjustments because the falling revenues for splits and the rising cost of production cannot be completely ignored. The low kill in the lower weights is helping to sustain price levels and so reductions in this section are moderate so far. This is widening the gap between the top and the bottom of the market.
The main problem is that nobody seems to have any solutions for dealing with the situation. Once again, it is not price that is currently the main issue. The ongoing decline in prices has not stimulated enough leather demand to increase raw material demand. We can discuss whether the reduced demand is a consequence of environmental controls in China or the general decline of leather demand, but, as always, it is a combination of all these factors.
Business last week reflected the whole of the second quarter. There were steady sales to premium customers, predominantly in Europe, and an almost complete absence of buyers from Asia. There was no interest for low grades and standard cows, but a reasonable amount of trade for heifers, bulls and any kind of specialty selections for the smaller, successful and flexible specialty tanners.
Prices were steady to 2% lower for the most desired grades. There was no interest and so no prices for the more difficult ones. In general, the cow market continues to be under pressure and prices could easily be 5-10% lower than what is being officially quoted. It is unclear whether all the production could be cleared at that level.
The kill: Holiday time means low kill and low weights, with no change in sight. The slaughter of heavy bulls particularly suffers.
What we expect: We continue to wait for the situation to change. The leather market has changed so much that all past experience and information no longer helps. We are moving into unknown territory, not so much on prices, where we still have plenty of space, but rather in analysis and market forecasts. The main problem is the uncertainty over the scale of global hide congestion.
| 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 | € 1,10 | 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 |
€ 0,85 |
Weak | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 0,80 |
Weak | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,60 |
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 | € 0,85 |
Steady |
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