German Perspective – 14.07.26
This week: Selling activities remained extremely quiet this week, in line with the usual seasonal pattern. In Europe, the summer holidays, which have either already started in some regions or are due to begin shortly, are now having a clearly noticeable impact. The leather industry is restricting its purchases almost exclusively to immediate order-related requirements. Where necessary, companies prefer to operate below full capacity rather than build additional inventories, for which there is currently insufficient certainty regarding future sales.
The general economic environment continues to provide little reason for optimism. The news coming from the German automotive industry is not only poor in relation to the current situation, but can, in some cases, only be described as alarming. As the automotive industry remains of considerable importance to large parts of the European leather industry, the prevailing uncertainty and lack of planning reliability are having a direct impact on the upstream stages of production.
The renewed tensions in the Gulf region and the associated increases in energy prices have likewise done nothing to improve market sentiment. In a market environment in which profitability is already under considerable pressure, any additional rise in costs is viewed particularly critically. The continuing uncertainty regarding revenues from lime splits and other by-products is placing an additional burden on the market. As long as there is no sufficient clarity regarding either future sales opportunities or achievable prices, calculations remain difficult for leather producers and further reinforce their defensive approach to hide purchasing.
Discussions about the development of the leather industry during the remainder of the year are therefore currently based more on hope than on hard and reliable facts. Nor are there any convincing figures from furniture, footwear and leathergoods that would indicate a noticeable improvement in demand for material for the remainder of the year.
The frequently expressed assumption that the continuing reduction of retail inventories will automatically lead to a recovery in demand has so far also not been confirmed. It is certainly possible that inventories are declining in individual areas. Whether and when this will result in new orders for the leather industry, however, remains unclear.
The usual bids for raw material were once again received from Asia, particularly from China, last week. However, these were again below the minimum prices quoted by suppliers and therefore resulted, at least in our case, in only very limited business.
It remains noticeable, however, that interest in higher-grade material continues to increase. In addition to calfskins, this applies particularly to the special raw material qualities required for the production of high-quality vegetable-tanned leathers.
Apparently, some buyers still do not sufficiently understand the significant difference between the trading practices applicable to commodity products and those applicable to speciality articles. Standardised products can frequently be replaced by comparable alternatives. Different conditions apply, however, to special qualities that are available only in limited quantities and cannot simply be substituted. Anyone wishing to purchase such articles must be prepared to pay an appropriate price. Otherwise, the chances of obtaining the required material diminish, or the buyer simply does not receive the quality they expect. The old rule therefore continues to apply here: You get what you pay for!
Overall, prices changed very little this week. This should not, however, be interpreted as an indication of a stable market situation, but rather as the result of the expectations of both sides of the market remaining far apart. Suppliers are either unwilling or not yet under sufficient pressure to make larger concessions, while customers are relying on the prevailing sentiment and expecting falling prices, which is reflected accordingly in their bids. As a result, sales volumes remained limited this week. In view of the currently low slaughter numbers, however, this does not represent a significant problem. Ongoing shipments are largely sufficient to cover the current production of hides. This situation is unlikely to change significantly over the coming weeks.
The kill: The holiday period has now fully begun in our region. Demand for beef from the food retail sector is correspondingly low. A considerable number of smaller slaughterhouses are also currently closing for their annual company holidays. This is something that was not observed to the same extent in the past. The remaining plants have significantly reduced their production and are adjusting slaughter volumes to the weak level of demand. Additional pressure is being created by the substantial decline in pork prices, which is also having a negative effect on demand for beef. Poultry and pork continue to dominate the market, particularly due to their price advantages. For many consumers, beef remains considerably more expensive in direct comparison and is therefore continuing to lose competitiveness. Without a fundamental change in the economic environment, the beef market is therefore likely to continue facing considerable challenges even after the end of the holiday period. The seasonal return of consumers alone will probably not be sufficient to resolve the existing structural problems. We do not expect any significant change in slaughter numbers over the coming weeks. With the return of considerably higher temperatures already being forecast, an improvement in beef demand appears even less likely. It must therefore be assumed that slaughterhouses will continue to maintain production at a low level and adjust their volumes only very cautiously to the actual sales opportunities available.
What we expect: In addition to the generally difficult market environment, the holiday period is now having its full impact on the overall business situation. Under these conditions, a fundamental change in the market over the coming weeks would be a major surprise. There are currently no impulses on either the demand or the supply side that could generate a sustainable recovery. The behaviour of the various market participants nevertheless remains interesting. It is evident that the expectations and strategic plans of the individual hide producers in Germany currently differ considerably. While we ourselves belong more to the cautious camp and align our decisions closely with the sales opportunities that are actually visible, other market participants appear to be looking towards the remainder of the year with considerably greater optimism. They may have access to substantially more successful sales opportunities. This optimism is reflected in some cases in stronger purchasing activity and a greater willingness to accept the current price expectations of the slaughter industry. Whether this strategy is confirmed by a later recovery in demand or will merely result in a further accumulation of inventories cannot be assessed by us at the present time. Ultimately, differing assessments of the development of the remainder of the year are currently confronting each other. Some are expecting demand to recover and are positioning themselves accordingly. Others are avoiding additional risks and concentrating on securing their ongoing business. By the final quarter at the latest, we will all know which approach proved to be the correct one. Until then, however, there is still some way to go. For the coming weeks, we therefore continue to expect a quiet market with limited business volumes, largely unchanged prices and an equally cautious underlying attitude at almost all levels of the supply chain.
