German Perspective - 24.07.18 - leatherbiz: Lea Leatherbiz

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German Perspective - 24.07.18

24/07/2018
What happened this week: We have reached the beginning of the core holiday season. There are still several tanners who are operating for another week, but for most now it is all about closing down and taking holiday time. The large, industrial mainstream operators in Europe have already  done their homework and are not taking part any more in the international hide and skin business. There are still some suppliers trying to convince customers to buy more product for September; perhaps they feel it is better to be safe with sales to reliable, regular clients rather than to bet on developing other and perhaps better options before the end of the holiday period.

However, most of the big tanners have become much more cautious and are not really willing to commit to anything more than they have to to ramp up production again after the break.

The main concern these days remains the unclear situation in the automotive industry. On the one hand there are media reports about the best first half of the year ever for many of the European brands and on the other hand there is plenty of information about brands planning to cut down production after the summer break for various reasons. German brands are making out that their plan to store significant numbers of vehicles in large areas which they have rented is only related to insufficient testing facilities. This is related to new regulations that they now face following the diesel emissions scandal.

The second excuse centres on the complications around the Brexit negotiations, which are making plans and programmes for the UK market and UK production very difficult. With the automotive tanning having been one of the strongest drivers of demand for many types of hide, this must at least be considered a warning sign at this stage. But the time before the summer holidays and also the model changes that automotive brands are introducing at the moment is always a bit tricky. There is generally a ramp-up in production in key factories after the summer, but nobody knows if backlog of finished vehicles still needing to be sold has already built up. The record sales numbers can be misguiding because these are all cars that have already been built; they are no guarantee or indication of what is going to happen next.

We continue to be very happy about the interest and demand in this specialty material section. Everything that is not mainstream continues to find very good demand and the specialty tanners are all reporting stable order books; they believe that this is going to continue to keep them busy at least until the end of this year. Some of them are saying that they have order books for six or eight months ahead and that they cannot meet current demand. This means also that leather, despite all the concerns, is not a dying species.

We received a high number of bids for material from China last week, in particular for cows and high-quality hides. It seems that several of the usual suspects believe the situation is like in 2008 when cash ruled and low prices could buy premium-quality raw material. Things are a bit different today and many bidders found it extremely difficult to understand that their valuation did not meet the market realities. As long as the Chinese industry does not develop its own premium markets at premium prices for leather it will never be competitive for the premium raw material. Successful European tanners must not be afraid of competition from that part of the world.

Although the bids were numerous we found them not very attractive at the levels the buyers were quoting, which was sometimes substantially lower than abattoir prices. If this is the way the market is moving, it may be necessary to take hits like this in September, but that is no reason to start taking those hits today. In the end this left only a few hide sold last week, with prices a bit lower for the small volume sold.

The kill: Holiday time. Low kill, low weights.The drought in the north of the country is beginning to worry farmers.

What do we expect: Let us wait to see if the first wave of interest at low prices is followed by new bids at realistic prices this week. This would at least mean that China wants and needs to replenish stocks during the summer.
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

€ 0,75

 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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