German Perspective - 28.5.19
28/05/2019
Overseas, we are stifled by market conditions. The US suppliers decided some weeks ago to change their strategy. While they were trying to mask the situation by pretending to have no pressure to sell, they have obviously changed their policy to move product.
What used to be 'price before volume' has now finally changed to 'volume before price'. As a consequence, prices dropped and volumes rose and this has widened the price gap with standard European hides once again. This continues to keep the downward spiral intact.
The accumulated number of hides in the US combined with the high slaughter makes it far from believable that the higher volumes have really helped much and offer any chance of a rebound of prices soon. Leather demand is simply too weak to create a balance or even a shortage for raw material.
If the EU suppliers want to expand their sales overseas to clear their summer production they will have to adjust the prices downwards again.
In any case the trade must understand that no matter what, further price reductions at the abattoirs are required. This applies mainly for the males where any surplus of hides will have to accept sharp discounts to be competitive with the US hides now.
The price structure is still in disorder. The main frustration is that semi-finished low grades have to be sold below production cost before the mould appears.
Large global manufacturers and retailers enjoy the situation and they can pick and choose qualities they could not even dream of in the past. Some may consider this as a windfall, but it will just intensify the downward pressure and competition in retail.
It is always easy to lower prices, but difficult to raise them, which creates a dangerous situation when prices have fallen below production cost.
Having lost the overseas market for the moment it was a week focused on serving the European customer base. Price concessions had to be made to keep the continuity. We think everybody does the same, but it will not be enough to clear all production.
The rumours about some spectacular stocks in various places continue to be heard. We had isolated bids from Asia for better grades, but could not convince ourselves to take them. Good material still finds a buyer eventually. It shows however that some Chinese think it is better to get more value for their money. Let’s see if they come back next week.
The kill: The kill is a fraction lower, but not the sharp downward trend we sometimes see at this time of year. There is a holiday on Thursday, which will reduce production again. Weight continues to be above our expectations.
What we expect: Our market requires another sharp adjustment of abattoir prices to reflect the full range of the market. We failed to achieve this in May with isolated players believing it is a good time to gain supply and market share. If the pockets are deep and the patience enough it may work eventually. However, for the foreseeable future it will not create happiness. Sales will remain a struggle.
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