US Perspective - 28.5.19
28/05/2019
www.themaxfieldreport.com
Members of the big packer trade report that after a slow start, interest picked up considerably and packers had a decent number of bids to consider. However, there were not as many bids as the past couple of weeks.
Packers started the with aspirations of holding prices steady, following three weeks of decent business. However, buyers had different ideas and continued to bid the market lower. Unfortunately for packers, a combination of poor sales the first four months of 2019, coupled with harvest levels that are running higher than levels of a year ago, appeared to force the hands of packers and most begrudgingly traded the market lower again.
Although there were reports of decent sales, it appears the consensus is that next week’s USDA Export Sales Report will likely reflect slightly lower sales. The majority of sales this week appear as if they took place at levels $1-$2 lower than the week prior.
Members of the trade in Asia claim that after a slower than expected start to the week, interest from tanners picked up; however, there were not as many bids this week as the past couple of weeks.
The price ideas of tanners moved lower again this week, as they continue to push for even lower hide prices, despite acknowledging that recent trading levels are more than affordable.
There are still a number of “special” offers from some of the packers, as it in spite of decent sales over the past 3-4 weeks, there are still hides unsold, which were accrued due to lacklustre sales the first four months of this year.
Supporting these claims are reports that a couple of the large packers have travelled Asia in the past couple of weeks, as have some large European sellers who are also accused of having “special” offers at levels $3-$5 under their official asking prices.
In other news, members of the trade who have travelled in Asia claim they have never seen such large inventories of wet-salted and wet-blue hides in the warehouses of the tanners they visited. Tanners say leather orders remain much slower than they anticipated.
Elsewhere, members of the trade report cheap/low quality hides from several other countries (non-major supplier countries) are now arriving in China. This is only making for additional competition among sellers of this type of material from the US, Europe, Australia and Brazil. In addition, now that prices of better-quality hides (US big packer equivalent) are approaching levels deemed affordable by these tanners, many are disregarding offers of low-quality hides, as the offers of better-quality hides are much more interesting financially.
Not all the news in the trade is negative - activity the past 3-4 weeks has exceeded expectations. In addition, there are still no tariffs on hides; however, there are many members of the trade concerned that the US will implement additional tariffs and we will have to wait and see how China would respond should this come to fruition.
There are also concerns of the effect of the tariffs on the goods of finished leather producers, particularly big upholstery exporters. Speculation is export tanners could lose up to half of their production because of the tariffs. As of this writing, most exporters of finished leather are in negotiation with end users on how to share the tariff, while a number are talking about moving production to Vietnam and Thailand, which of course takes time.
As to leather business, reports from the upholstery trade claim leather orders are falling short of levels of a year ago, while the pending tariff situation is likely to decrease orders further.
Sources share many export tanners have started looking to the domestic market to replace their loss of market share from the export market, while traditional domestic tanners in Hebei area started to cut prices to defend their share of the domestic market.
Meanwhile, shoe segment tanners are complaining about their lack of leather orders compared with a year ago, while raw material inventories for many tanners are running higher than normal. The good news is that many tanners acknowledge hide prices are more than affordable, however, few, if any, appear as if they have any confidence in future leather orders to gamble on the market and put some of the best hides of the year away at cheap levels.
Soaking levels in the Hebei Province are reported to be running at one-third of their production for most tanners compared to last year. Some of the business has moved to Southeast Asia, while there are claims that the Chinese domestic market has also slowed considerably this year, making for a difficult situation for most tanners.
In the meantime, there are rumblings there are some tanners selling leather below costs, accompanied by claims some finished sofa leather has been sold as low as 5-7 RMB / sq. ft., which is barely enough to cover production costs, and does not include the cost of the hide.
Reports from members of the cowhide trade claim the week got off to somewhat of an uneventful start, but by the middle of the week, the number of bids improved; however, they were not nearly as plentiful as the past couple of weeks.
We did hear some positive news this week as sources share that interest for conventional small packers has been so decent that offers of this selection are difficult to come by. This has forced buyers who usually buy these types of hides to seek fleshed small packer hides, which are not nearly as sought after.
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