Anticipation before trade shows marks forthcoming new season
Macroeconomics
Not only activity in the leather sector was reduced but also the general financial markets were in a holiday mood.
The only matter of general interest was the oil price, which was present in the media worldwide. Speculation and general hysterical attitudes, combined with the movements of energy prices, pushed the price of a barrel of oil to almost $50. Fortunately, markets have become more realistic again in the past few days and prices dropped back to the mid forty level. However, we still consider oil prices to be high despite the comments of leading financial institutes that the present price level for oil will not have a negative effect on the global economy. We do not share this opinion and think that an average price of $40 or higher per barrel will definitely have effect on consumption and prices over the next six to 12 months.
The erratic movements in many raw material markets and, in particular, in the oil market can still create big surprises and we don’t exclude the possibility that oil prices could fall in the next few months and the last weeks have only been a blip in general and price trends. Consequently, an admission of influence of the cost of oil on the markets will only be made if oil prices stay higher than $35 in the next six months.
Apart from that, trade in the dollar in the band which has been low now for almost three months and the short term weakness which brought the exchange rate to about 1,24 the have lasted very long and, in the meantime, we have come back to around 1,21 against the euro. Consequently, nothing really has changed in the calculation for the leather industry during vacation time.
Forecasts about global growth are still quite optimistic even though the growth rates in the
Market intelligence
As already indicated prior to the holiday season several versions of the Market Intelligence will be short until the world of leather returns to its normal condition. And this one is going to be a short one. Not only are we publishing late, for which we apologise, but there has also been very little activity worth mentioning or of major influence to the tanning industry.
Trading was extremely light in the last weeks. In Europe that is no surprise in view of the ongoing holidays. In Asia we would relate this to change to the start of the new leather production season. It is tangible that the leather pipeline has fallen into the classical paralysis at the end of August. In former times, the breakthrough point used to be the SIC in Paris everyone was waiting for, now it is the fair in Shanghai as a meeting point, plus many other shows in China (Wenzhou, Haining) and around the globe in furniture, garments and shoes.
Besides the shows, retailers and manufacturers are returning to normal business hours and final orders for the Christmas season in the West and the Chinese New Year sales in the ‘East’ need to be placed and discussed. In Europe leather production normally has a slow start after summer holidays and slowly picks up after mid to end September.
Almost all of the producers have already made their procurement for this period of transition and are now focussing their attention on sales and discussions with their customers to get an overview about the fashion, the articles and the quantities indicated by the retailers. Consequently, activity is ceased until everyone has made up their mind.
The initial feel for the new trends will certainly be delivered next week in Shanghai. Many of the international traders are already travelling to China and will bring their information to the show. The melting pot of information and gossip will definitely create an environment in which opinions and short-term future trends will be developed.
The rest has to come from the more fundamental and rational results of the trade shows for finished products and the orders placed by the big retailers. Price will certainly be the focus of discussions. As already mentioned in the previous versions of the MI, rising raw material cost will force suppliers to ask higher prices from their customers. From what we know there is very little chance that producers can achieve a lot of success with this attempt.
A bit worrying is the increasing information about delays of openings of leather credits from China. What was isolated information some weeks ago has become a common complaint in the last few days. Most suppliers are not yet really concerned because they feel that this is just an interim problem, as many of the tanners are simply waiting for the orders and article instructions from their customers. Indeed, this is a very plausible view of things and we just hope that the delays are not related to financial problems, which could have a much more severe impact on the market situation. However, the next two weeks will deliver better and more reliable information and we will be able to have solid based information and view in the next version of MI.
In other sectors of the market the situation was the same. Neither was the split market delivering any particular news nor were lamb and sheepskins excitingly active. However, if there was any activity worth mentioning then it is the small skin sector. Some reported sales indicate that the next season will be a good one for small skin garment leather. However, here too we will have to wait for the results of the trade shows taking place in the coming four to six weeks.
We refrain from making any forecasts for the coming weeks. We cannot believe that within the next fortnight much will change as far as prices are concerned. This will be determined by collection of information and analysis. We have decided that we will issue and publish the next version of the market intelligence on 8 September, as this will give us sufficient time to analyse the results and the opinions we are going to collect of the next 10 days. After that we will return to the normal bi-weekly service.
