German Perspective - 15.01.19

15/01/2019

What happened this week: The second full week of the year has ended and slowly business is returning to normal. European tanners have returned to work and Chinese tanners continue to fish for bargains; they seem surprised that, for female selections the trade believes the market has touched the bottom and there is little interest in discounting prices any further. Chinese clients find this difficult to understand since it was common practice up until the end of last year for each deal to be cheaper than the last. Buyers seem convinced that this would continue into this year, all the way, perhaps, until hide values reach zero.

This is not really about change in the general market but simple economical logic. For the buyers not just looking for the cheapest price, EU cows are presently the most attractive option to produce an acceptable, medium-quality leather. Most reliable suppliers have been able to sell sufficient volumes, in particular in the heavier-weight ranges, and with the declining kill are in a balanced position, with a few exceptions for lightweights and odd lots of questionable origin and quality.

It seems that we found fair average value prices now, and that this is good news, as long as we don’t face new competition from other origins. To speculate on a rebound is definitely premature, though, because nothing has changed in the leather market and we should not fall into the trap of thinking that a flurry of activity in China in the build-up to their holiday break for Lunar New Year (February 5 this year) is an indication of a fundamental change in the market.

Soon we will enter the holiday break in China, and after that we will have to wait for the APLF exhibition in Hong Kong (March 13-15) to see how things are. This is generally followed by the end of the high season for upholstery leather production, from May onwards.

So, let us enjoy the fact that we have struck the right value for these hide types and accept that this is what we are still missing for male selections. Generally the hide market has once again been a solid indicator.

Hide prices tumbled when the meat industry was still telling us about good business and great prospects. Any doubts and questions were considered to be negative and not appropriate. Well, with management teams having secured their 2018 bonuses the real news is arriving at speed, along with the excuses. The hide market is immune to such fake news, but remains sensitive to the games played in its own community and to ignorance of facts.

For some time now there has been a slowdown in global vehicle production. Forget about the statements car industry chief executives; car sales are cyclical and in addition to the general cycles we have several other negatives. Since the industry was not willing to adjust production in anticipation (bonuses in danger?) to meet annual targets and celebrate record numbers, we are now facing congestion along the supply chain. This sets overvalued male hides under serious pressure and nobody knows when and where the correction will come.

Trading this week was once again related to the willingness to accept aggressive bids or not. There was certainly an increased number of bids and interest, but the prices were not inviting and counters were left open. The majority of the interest was once again for higher-quality and heavier cows and heifers, which are simply more attractive than males. If all negotiations end with a sale, it will have been a good week. Most of the interest came from Asia.

The kill: The kill this week was back to seasonal levels, normal for January. There is less live cattle in the market and the calculations of packers are not easy for the time being. Weights are still lower-than-expected for females and regular for bulls.

What we expect: We expect more excitement this week. It will be interesting to see what happens to all the pending orders and what EU tanners do in response. Various regular programmes need to be renewed in the coming two weeks and tanners’ attitudes will tell us a bit more about the leather demand. Most tanners still report massive pressure on prices from their leather buyers and will certainly expect further reductions. Let us see.

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	€ 1,60	Stable
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 0,90	Stable
Dairy cows	15/24,5 kg	22,5/23,5 kg	13/22 kg	20/21 kg	€ 0,70	Stabilized
	25/29,5 kg	27,5/28,5 kg	22/27 kg	25/26 kg	€ 0,58	Stabilized
	30/+ kg	33,5/35,5 kg	27/+ kg	29/31 kg	€ 0,53	Stabilized
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	€ 1.50	Weak
	40/+ kg	45,0/48,0 kg	34/+ kg	38/40 kg	€ 1.35	Weak
Thirds	15/+ kg	25,0/27,5 kg	13/+ kg	24/26 kg	€ 0,35	Weak
Thirds bulls	30/+ kg	38,0/40,0 kg	24/+ kg	33/36 kg	€ 0,75	Weakish

German Perspective - 15.01.19 - leatherbiz: Lea

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German Perspective - 15.01.19