German Perspective – 29.01.19
29/01/2019
Many people got very excited in the past few weeks because they either heard of or experienced more activity and purchasing from China. As usual in this industry, they saw this as a change for the better and as a sign of the turn in market trends. There are always different opinions and each one should be respected. However, based purely on the facts, it seems a bit premature to already be calling this the big change.
Certainly, we have seen a flurry of sales over the course of the past three weeks. We have learned in 2018 that leather demand has declined, which was the main trigger for the substantial decline in raw material prices. We have also seen that there is no general market trend and that each segment is building its own balance between supply and demand.
The traditional spreads have been changing and have massively widened. If some origins and hide types have seen a bottom, such a small rebound of a few per cent or dollars cannot be seen as a fundamental change to the equation. Leather demand has certainly not improved right in the middle of the busy season. We are likely experiencing a round of replenishment as a result of attractive prices.
Looking at the valuation of hides and their prices, there are still a number of types that are expensive compared to other options. The gaps are still wide and the cheaper options still need far more support before the gaps are closed and the expensive options can feel safe again. In Europe, this applies mainly for the medium-weight males, while dairy cows and some heifer types have a much more solid base. To trust already in a sustained rise of prices would be dangerous.
We are now entering the holiday season. Asian tanners have replenished their inventory and will have enough to cover their needs for a while, March and possibly also April soaks. From April we will again enter the low season. This coincides with lower hide weights, which quickly becomes a burden for calculations.
Anyway, memories are short and so it is often forgotten that in many years sellers have tried to push prices ahead of the Hong Kong fair with small sales, only to find out afterwards that the scare strategy was punished with declining purchases due to reduced needs in spring and summer and falling prices.
As much as we all wish that prices have hit the bottom and that supply and demand is returning to balance, we have to face that there is still a massive surplus of hides in the medium and low-end of the quality range. What’s more, it seems that every day one receives offers from suppliers of various origins looking for new outlets.
Sales and activity slowed considerably last week. There was plenty of talk and some tried to jump on the bandwagon and catch some better deals, but buyers put the brakes on and were only willing to pick around the edges at steady prices. Some sales were recorded for cows and there were a few isolated deals for bulls in Europe.
The kill: The kill is actually not so bad for the time of the year, but we can’t find any specific reasons for this. Weights are hovering around the highs of the winter season and the real winter weather may support beef consumption until the carnival season.
What we expect: The next few weeks will be dominated by the holidays in China. It seems that the tanners in China will depart with not much more needing to be bought. They will watch the market closely to see how the showdown between large suppliers and buyers ends. After the long decline and the short rebound, one can imagine what both sides are now intending to try. We feel it will end in a period of ‘wait-and-see’ with both sides digging their heels in. This will leave trading activity mostly focussed on the alternative Asian market and the tanneries in Europe.
| 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 |
Stable | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 0,53 |
Stable | |
| 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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