German Perspective - 11.09.18
11/09/2018
Hope springs eternal, but anyone who imagined that tanners around the world would use ACLE to begin digesting the reality of the situation and then rush out to buy more hides will have been disappointed.
The market is a pyramid and the further you go up in quality the more the market is in balance between leather production and raw material supply. The opposite is also true and is beginning to be serious problem for the trade, and also for the beef industry. The more you move down the pyramid the more there is surplus supply, which is no longer being taken because it is not needed to match the demand for finished leather in this segment.
The main problem continues to be the shoe industry, which began to reduce its use of leather after prices rose sharply in 2014 and technology advances made automated production more feasible. Soon, plastic appeared much more inviting for making shoes flexibly and with less labour, especially as brands found they could sell them at basically the same price as before.
One big problem was that hide suppliers refused to see the writing on the wall for a long time. What happened with sheepskins should have given them all the warnings they needed and if they had paid attention there may have been time enough to prepare and take better action. The fact is that this industry has no plan B and that means we are dealing with a situation for which no solution or proposed response is in place.
The really annoying thing is how long it took the majority of people in the industry to acknowledge where we are in today. People thought that animal welfare organisations attacking the leather industry were the problem, but it was far more straightforward: it was simple business economics.
Faster, cheaper manufacturing, with easier-to-control materials, more flexibility and fewer problems equals more profit. It’s as simple as that. The shoe industry serving the mass market is not a charity and does not exist to promote leather as a material. The consumer is happy with other materials that easier to handle and simpler to produce, and if these products have a shorter life-cycle, so much the better because this generates more growth and profit.
It will not be easy to reverse this trend. Plastic presents a serious environmental problem, not leather. But plastic is well made and complies with the standards that are in place in most parts of the world.
Fortunately, the same trend has not yet hit other big markets for leather. Leather-upholstered furniture may not be selling like hot cakes, but it seems stable, at least, as long as quality requirements are met. The auto industry is not performing evenly around the globe, but production and consumption continue to be pretty high.
All the above has been reflected in the hide market for quite some time, and so it was this week. Cheaper raw material, mostly used in the shoe industry, is having a difficult time, with more and more hides falling below values that would be the minimum to justify collecting and preserving them. Hides for the upholstery industry still have a bit to go, but some grades are also getting close to these problematic levels.
Hides of proven superior quality for whatever segment of the market have jumped quickly in value and the spread between the good and the bad continues to widen. Sales this week were once again sporadic. The most difficult task today is to get the full range of hide selections moved. Prices continue to be under pressure and we do not think any sellers will have got what they were asking for at the medium-to-low end, while for better and heavier hides, we could consider the market to be weak-to-steady.
The kill: The kill has fallen by quite a bit and it seems the wave of females farmers wanted to get rid is rolling out. Males are still very scarce in the mix and this should last until October. Weights are not yet picking up and so we think the real turn in the market will come only in October.
What we expect: Without a change in the fundamentals we are in same vicious circle. Quality leather sells, and we might even say it is selling well, as are the hides related to that market. However, that is simply not enough. For the rest of the market we need something to stimulate demand. Everyone is talking about this, but unfortunately no one has found the answer yet. Currencies and tariffs are not helping either.
| 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 | Stable |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 0,90 |
Weak |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 0,70 |
Weak | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 0,60 |
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 | € 0,60 |
Weak |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 0,80 |
Steady |
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