German Perspective - 17.9.19
17/09/2019
The market in China was dominated by the holiday this week and the preparations for the anniversary celebration at the beginning of October [ the 70th anniversary of the founding of the People's Republic of China]. Consequently, tanners from China were reasonably quiet this week and if they were willing to show any kind of interest it was once again for the premium quality hides. The tanners holding leather orders are finding pretty expanded margins for specialty and high quality types. That is the good news, but as good and as expensive hides may be they still produce a quantity of lower grades where the valuation is presently pretty much an unknown.
It is not just the price, it is more that the market potential for lower grades is significantly lower than the existing stocks. However, tanners in Asia are now looking for the safer bet and try to buy as high quality as possible. Those customers that still hold contracts for more commodity type of hides are either trying to postpone shipment or trying to exchange standard hides for premium hides.
This becomes a bit of a problem. The spread between the prices continues to widen and it seems it's close to the limits. There would be more premium quality hides supply, but the top end of heavyweight quality material from Europe is still beyond what the Chinese client can really imagine to pay.
This week the IAA automotive fair took place in Frankfurt and demonstrated all the discussions and problems the automotive industry is facing. The good news is that between talks, political noise and protestors, vehicle sales might see some headwinds but generally are reasonably stable for most brands. What this means for leather consumption is not clear, but we do not have to expect any substantial short-term changes.
The rest of the market continues to remain in pretty much the same pattern as we have seen for a long time. The substitution of leather by plastic does not show any indication of changing. The use of leather in premium accessories and handbags continues to be stable, although the large brands are putting a lot of pressure on finished leather prices. Premium shoe manufacturers are willing, with lower prices, to alter some plastic their shoe designs.
The biggest impact on decisions is still coming from the trade tensions between the US and China. For prices this week it all meant very little. In our part of the world, most people were happy to keep the market stable knowing that any up and down would not really have a positive influence on selling.
The kill: Numbers continue to be stable with some warm weather returning. Weights continue to be on the high side of expectations.
What we expect: We fail to find any reason for a change of the fundamentals. The leather production returns to the normal seasonal gear and the volume boost we would need now has to come from Asia/China, but can only be expected when the trade discussions, the celebrations and the trade fairs are over.
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