Friedrich Sturm Report - 14.04.06

18/04/2006

What happened this week: Some of the excitement seen in previous weeks seemed to have disappeared this week, which may have been related to the Easter break in Europe. However, Chinese buyers–as in most other parts of the world too–continued to plough through their suppliers checking to see if there were any more containers left to buy for shipment in May or, at the latest, the first half of June. It doesn’t seem that they had much success as most sellers with planned businesses are sold forward by at least a month and the expected kill for the coming weeks, which will often be shortened by local holidays, does not leave much room for any hope of additional availability.

Anyway, in the present market it is tempting for sellers to see how much they can squeeze out of clients who are showing so much desperate interest in buying hides. It is also interesting to see that the current market has a ceiling. Adding to the recent top levels paid, buyers were still not willing to negotiate up to the next level, which would coincide with most of the reports we are hearing from other markets. The million dollar question as to why China has been absorbing such increasing volumes of hides since the beginning of 2006 remains unanswered.

Most of the community is convinced that apart from a certain improvement in the leather business, it is related to the import tax changes in China. What backs up this argument is the fact that tanners seem to have a clear calculation as to how far they are willing to pay this market up (<10 % versus the end of last year) and a reasonably clearly defined time frame (the end of June). This matches with the general assumption of what the new policy will mean: Expiring customs books sometime around the middle of 2006 and a net burden of about 8-10% for imports. This would mean that every purchase made with a valid customs book within a maximum 10% increase compared with six months ago is attractive. If this really is the whole story, then all those who are predicting a sharp decline in interest after July could be right, because leather buyers will also try to secure as much leather as they can before the taxes come into effect.

But, this is not the whole story and one can already see various preparations and administrative set ups designed to find loopholes in the tax regulations in the future. Despite all of this speculation one can’t, however, deny that, apart from shoe and leather goods, a big question mark still hangs over the volume of leather orders and the level of profitability. From what one can gather from the leather market, it doesn’t seem that tanners are being rewarded with higher leather prices and the sheer volume of orders and the increased demand for raw material should maybe be analysed more than once. Not to speak of the questionable timing of the market activity—in particular for upholstery related hides.

There was also some business done this week. A few dairy cows were sold and some low grades found homes. Prices were fully steady on asking levels. Tanners are bidding but, at the end of the day, whilst realistic asking levels were achieved, we were not rewarded with further increases.

The kill: Fell by about 10% and this decline will be added to by the short weeks this week and next. Consequently fresh hide supplies are going to be affected in the coming weeks and supply management will be tough, as is usual now in the second quarter.

What do we expect: The firm market will persist although the sentiment seems to be settling. Under normal conditions, the market is fixed at the established levels and it is entirely up to the tanners what happens next. Larger open-to-buys would create massive market tensions, otherwise this market is going to spend spring in a relaxed mood, for a while anyway, because most has been bought and sold.

Type	Weight range	Avg. green weight	Salted weight	Avg. weight salted	Price per kg green weight	Trend
Ox/heifers	15/24.5 kg	22.0/23.5 kg	13/22 kg	20/21 kg	€ 1.65	Steady
	25/29.5 kg	27.5/28.5 kg	22/27 kg	25/26 kg	€ 1.50	Steady
Dairy cows	15/24.5 kg	22.5/23.5 kg	13/22 kg	20/21 kg	€ 1.65	Steady
	25/29.5 kg	27.5/28.5 kg	22/27 kg	25/26 kg	€ 1.45	Steady
	30/+ kg	33.5/35.5 kg	27/+ kg	29/31 kg	€ 1.35	Steady
Bulls	25/29.5 kg	27.5/28.5 kg	22/ 27 kg	25/26 kg	€ 1.62	Steady
	30/39.5 kg	36.0/37.0 kg	24/34 kg	31/33 kg	€ 1.52	Steady
	40/+ kg	45.0/48.0 kg	34/+ kg	38/40 kg	€ 1.42	Steady
Thirds	15/+ kg	25.0/27.5 kg	13/+ kg	24/26 kg	€ 1.20	Steady
Thirds bulls	30/+ kg	38.0/40.0 kg	24/+ kg	33/36 kg	€ 1.20	Steady

Friedrich Sturm Report - 14.04.06 - leatherbiz: Lea

Intelligence

Friedrich Sturm Report - 14.04.06