German Perspective – 05.02.19

05/02/2019

What happened last week: We could have copied all we said in our previous report to this one. Last week was similar to the final week before Christmas in the Western world. Everybody in China was busy wrapping up for their break, attempting to leave a clean table so they could enjoy their time off with family. It is never totally clear what this means. If one simply closes their eyes and wipes everything from their desk into the drawer, the issues will still be waiting for them when they return.

Anyway, for a supplier we have to admit that this this year has not been a bad one so far. We have at least been seeing many open cases handled and almost all pending cases for payments and shipments resolved. This means we were able to clean up a lot of issues, settle old cases and get several overdue contracts honoured. There weren’t many, but it still offers a good feeling when open files can be closed, not to mention the positive impression these actions leave.

We are far away from believing that we are entering a new era, but it would be fair to assume that the main Chinese customer base is not leaving for the break with a feeling of total pessimism. Although there are no verbal statements that business is any better, the number of complaint emails and statements has at least been reducing. That’s already better than we thought at the end of last year.

So, we enter the holiday period in Asia in a not fully pessimistic mood. There are now two to three weeks to sit back and carefully analyse the market. There is quite a bit to study. The raw material replenishment has offered some relief, but it does not change the basic problem. It does not stop the decline of leather demand or offer any indication that the trend could be reversed.

It is true that several people are forecasting a rebound of leather demand and more activity in spring. In particular, automotive tanners are talking about an end to the inventory adjustment phase after March, although they fail to underpin their statements with any hard facts. Automotive sales and production have not fallen by 20-40%, the present decline of soaks, so some recovery can indeed be expected one day, but the levels of 2017 and 2018 will not be reached this year. In addition, the question remains of how many vehicles will be equipped with leather.

In the upholstery and shoe sectors, where the length of the pipeline is different, the situation seems to be far more balanced already. This does not mean that demand for raw material matches supply, but leather demand seems to have stabilised and no further adjustments are needed at this stage.

With all this the administration office was busy, but there were few new sales. In Europe, the regular supplies are organised and we could not trace much additional demand. It is possible that tanners now want to wait for the upcoming fairs and for more indication of new orders. In Asia, tanners seem to have covered their needs. With the shipments they are now getting from all over the world it seems they are covered sufficiently for some time.

For the little business done, prices remained reasonably steady. We shouldn’t consider this a real market indicator as there was too little volume to declare it a true reflection of the market.

The kill: The kill is a little lower, not that this can be seen as a major change. The numbers are still decent for this time of year. Weights remain on the heavy side and the slaughter mix still has more females than males.

What we expect: The next two weeks will be quiet with the focus on the European and Southeast Asian tanners. It is unlikely we will see any major changes. The main danger for the market remains the ambition of the beef industry to manipulate the market higher. This would not be a good idea without any proven increase in leather demand and could run us into the next dead end. The scare strategy will not impress tanners as long as leather interest doesn’t pick up and while other origins are happily grabbing what others leave due to price.

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	Stable
	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	€ 1.25	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	€ 0,60	Weakish

German Perspective – 05.02.19 - leatherbiz: Lea

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German Perspective – 05.02.19