German Perspective - 22.01.19
22/01/2019
The consequences are the same as ever. Many tanners had been leaning back and letting the market slide, waiting for cheaper purchasing prices. However, eventually, they have to come back and replenish if they want to continue to run their businesses in 2019. Raw material input has to match leather demand and, whomever you talk to, the trend everywhere is towards better quality, higher substance and more natural-looking types.
This has also reached China, which means tanners there are having to adjust and retune their raw material supply. In the case of China it is a very obvious trend, which started late last year. Tanners are beginning to realise that matching raw materials are not in the same abundant supply as the commodity types.
This leads to a second problem. Price. Chinese tanners have, in all the evolution of the industry, never learned that the real quality section of the market follows a different logic of pricing. Chinese tanners have displayed a strong interest in heavy and high-quality cows and heifers but were not willing to acknowledge that these cannot be bought with just a small premium to the standard types; they have their own price range. We see a similar situation with males.
The reference for the price of males is only seen in US steer prices and, with the constant weakness of the market there, Chinese tanners just think it is enough to place a bid related to US prices and that everyone will jump on the bandwagon. Well, the price realities of the European slaughterhouses and the added value a European-quality tanner can create have little to do with the commodity production and prices that Chinese tanners usually deal with. In short, there was a lot of interest, in particular for heavy and quality hides, but only very few sales; just a handful buyers were willing to find a compromise.
In Germany, the IMM furniture fair in Cologne took place and delivered in the end a similar pattern to that of the entire market. Good-quality leather can still attract interest, despite all the general difficulties the world has to deal with. Commodity leather, which is not unique and appears similar to lots of alternative products, is struggling and is suffering from the price competition. The times when a sofa covered in fabric was one price and, just because it had leather, another sofa was more expensive, are history.
Business this week had decent volume because of renewed programmes here and selected business overseas. While the negotiations for better-quality hides were tough we are still concerned about the low end and so we decided to take what was offered for the low grades and this was not much fun. Let us see if it was the right decision to clean up while we could.
The kill: The kill was not so bad this week. If, as the media tells us, almost everyone is vegan now, the few who still consume beef must load their plates three times a day to explain the current kill and all the forecasts for beef production for 2019. For us it will be interesting to see what the consequences will be in 2019 of the excessive cow slaughter in 2018.
What we expect: We have come to the conclusion that the pre-holiday activity in Asia has at least brought some contracts. Letters of credit openings and payments have also improved and this has made the product flow a bit more liquid again. However, the decline in leather consumption paired with the stable or rising raw material supply does not leave much optimism for a sustained recovery of prices. Quality will sell as usual and, for below-average-quality material, we could enter a new era with serious structural changes along the chain of the industry.
| 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 | € 1,40 |
Weak |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1.40 |
Weak |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.30 |
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 | € 0,70 |
Weakish |
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