This week: The strategies of buyers and sellers are drifting further and further apart. The supply side tries hard to hold the market stable throughout the summer. The biggest raw material-consuming market, China, tries to play the opposite game. The rest of the world is the audience watching the game, but having little influence.

The key players are so dominant in the commodity sector that there is little escape. Markets like the one for calfskins and heavy, high-quality males in Europe for example, can disconnect from the global situation. These markets are dominated by either far larger added-value conditions or the unconditional force to supply just-in-time to automotive market.

Reduced kill is probably affecting the availability of heavy material more than profitability. This might be the big problem in analysis of the markets. Those who just look at the price and have a timeframe of not more than one month must definitely come to a different conclusion than people who have a wider perspective and think in cycles rather than seasons.
Raw material strategies either require speculation (which needs storage space and finance) or a timeframe that is beyond a single season. The past 12 months offered a very good example of the above.

We have several key questions for the coming months. How large are the stocks in China and for how long can Chinese buyers stay out of the European market? And how desperate are European tanners to constantly replenish their inventory until the holidays when most of the current leather contracts expire?

This past week, the first bids from China for weeks were seen, but they were so low that it was useless even to counter. It’s interesting that the target is price alone. The bids were exclusively for lower-quality and cheaper hides. The top-quality hides, which were so popular until the first quarter, seem to hold no attraction at the price they have reached now. In Europe some business was concluded. Programme buyers are covered for May and sales were from spot clients for male hides. These went at asking prices; the low kill does not really create any need to discuss price concession at this stage. So, the total volume of sales was below average, but for the production of the holiday-shortened month of May, enough.

The kill: A bit better before the weekend, but typical for spring. Another holiday this week, on the Monday after Pentecost, means May will end with reduced numbers.

What do we expect: We continue to think that there is no real momentum to move the market much in the short term. Overseas tanners will do everything now to move prices down. If they have the stocks they claim to have, it could work in the end. In Europe meat companies will play it hard, knowing that the large accounts need to stay in the market, in particular for males.

Share this story: