This week: The third week of the new year has already come to an end and we still cannot report that the year 2023 has really started. From our point of view, the first three weeks dragged on without any noteworthy activities or insights. Of course, this is largely due to the fact that we have a very early Chinese New Year this year, which means that the holiday break in Europe has merged almost seamlessly into the holiday lull in Asia. In addition, of course, there is the end of the restrictive pandemic policy in China, which came so quickly that the manufacturing industry and the public were not really prepared for it. What consequences this will have for the economy as well as for private consumption in China will only really be seen in the weeks after the Chinese New Year.

In such a situation, everyone actually constructs their own picture of the market and lays out how they would like things to develop. On the packers side, they like to point to the lower slaughter numbers and to the new situation in China, which in simple combination means less supply and more demand, resulting in rising prices. On the other hand, the leather industry has a completely different view of things and points to significantly increased production costs and at the same time lower demand in many areas, especially in the furniture industry, which they believe should lead to falling raw material prices.

This actually puts the two poles relatively far apart. The situation is further aggravated by an extremely large difference between the prices officially published in some cases and, on the other hand, the deals actually concluded.

All this leads to the fact that meeting points on supply and demand and on prices are limited at the moment. If one limits oneself to the few hard facts that are available, one comes to the conclusion that the total supply of cattle hides is clearly greater than the total demand. However, if one splits the different quality segments up, the situation shifts and the extreme oversupply is regional and in the middle- and lower-quality grades.

On the other hand, tanners are trying to increase levels of business and margins by focusing more on the better and more expensive grades, which then increases the demand for better hides overall. All in all, of course, this helps the European suppliers, and puts more pressure on other origins. In the case of the poorer grades in Europe, the demand for raw material for collagen production is now playing a significant role in the market for the lower-quality range and the calculation of split returns.

Where this journey will ultimately go will only really become clear in mid-February, when all participants are again present in the market and final decisions regarding demand and production for the second quarter will become known.

This week, sales were again rather sporadic. This is not yet a problem, as on the one hand the kill remains low and thus there is no major selling pressure. What could be sold this week was again in a very narrow range around the prices that have been valid since December.

The kill: As already mentioned, the kill remains constant at a low level at the moment. The meat business is just not good enough and therefore we would estimate that we are at about 70%-80% of what one would expect at this time of year. Nothing seems capable of changing this situation soon.

What we expect: We are now slowly approaching the next set of price negotiations. Whether these will bring a reflection of the actual market situation seems doubtful at the moment. It remains to be seen whether sales prices can be reconciled with the sharp fall in the value of the US dollar and the fairly low price level overseas. The production of hides will probably not increase significantly in the next few weeks and then it will become clear how urgently and how much raw material the leather industry actually wants to purchase. From the leather demand side one really cannot see any stimulus at the moment. In a few weeks we will know which market force was able to prevail in the end.

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