German Perspective – 30.10.18
30/10/2018
General concerns about the global economy, the consequences of the tariffs resulting from the trade war between the US and China, and the rapid increase of the kill in Europe have begun to confirm the general scenario we described a week ago.
The fundamental surplus of raw material in the market, which has been building for a long time now, is going to hit Europe and in a much stronger way because the long, hot and dry summer has come to an end. The change in weather conditions to more seasonal patterns also supports beef consumption, as does the cattle slaughter.
So far, the farmers are still taking benefit from the late but favourable weather conditions, with seasonal high temperatures and a bit of rain. A lot of feeder cattle are becoming ready for slaughter in the next six to eight weeks. This means higher kills are being met with far lower than normal seasonal demand from the leather industry.
A number of factors have left a bitter taste in the market at this moment. They include falling car sales and vehicle production in Europe; the holiday season at the end of the year, followed by the Chinese New Year holidays; general concerns about the economy; the gain in market share of alternative materials; and the pre-emptive action by Chinese tanners in preparation for a potential increase in tariffs on January 1.
The news that one of the leading leather upholstery manufacturers in Italy is in serious financial trouble has also affected industry sentiment. All these negatives are dominating decisions and the market in general.
We still have a lot of tanneries that are producing at normal levels and have not yet faced any negative influences. It cannot be denied that the industry is now paying for mistakes made quite a long time ago.
To end the depressing reports, the biggest frustration is that even at the normally busiest moments of the season, there has been no uptake in leather demand. As a result, those with regular clients and business have to take good care of it.
Our main concern now is the automotive industry because key European producers are for various reasons cutting production and shifts wherever they can. Those in charge are blaming the diesel emissions scandal, but we all know there are many other factors; Brexit and a general malaise after the boom are just two examples.
We now come to the general trading and business activity of last week. During the previous week, most of the interest from Asia was focused on the US, with material booked for arrival before January 1. It seems that some tanners decided that it might be wise to have product in the books. Interestingly, it was not the usual dairy cows that were topping the list of interest, but mostly heifers. There was even interest for lighter weight bull hides.
Prices for bulls were very bad, but due to the lack of interest for this kind of material in Europe we thought it might be better to bite the bullet. The volumes of individual deals were reasonable, but the problem still remains that the full range of high production cannot be cleared.
The kill: The kill jumped, for males in particular. This was unexpected, and more relief was offered by the sharply rising average weights. Slaughter is 25-30% higher now than the summer average.
What we expect: Even though activity is a bit better now, we don’t yet see how a fundamental balance between raw material supply and leather demand can be achieved. Looking at the rising kill, the approaching holidays and the subdued leather demand, we might be slowly getting to the point where a new era of the leather supply chain could start. For the moment, the struggle continues.
| 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 | € 1,00 | 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 |
Weakish | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 0,60 |
Weakish | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,50 |
Weak |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1.60 |
Weakish |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.50 |
Weakish |
|
| 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 |
Weakish |
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