International tension affects leather pipeline
Macroeconomics
The summer season has set in almost everywhere and the financial markets have not produced a great deal of interesting news. Most indicators remain on track and have not shown too much variation in recent weeks. Consumer confidence in the
Consequently, our attention was much more focused on the general political situation. We have repeatedly drawn our readers’ attention to the situation in the
Political unrest affects world economy
One way or another, if the situation remains unsettled for some time, it will inevitably have an impact on the world economy. The most obvious indication of this is the price of crude oil which has reached the mid $70s and, under the present conditions, prices around $80 or more per barrel would come as no surprise.
Although the experts still maintain that the world economy could handle prices of $80 or more, we believe the opposite. The effect of the price increase is merely subject to a significant time lag and, as long as the western world and the emerging markets are dependent on oil, it is a matter of ignorance to believe the prices will not eventually hit the global consumer hard.
The currency market also remained in pretty narrow ranges and the US dollar was able to gain some momentum as a result of the increasing tensions in the world.
Market intelligence
The summer period is a time of shorter reports and less market activity. This might be the case again this year, but it seems that the situation along the leather pipeline is going to be much less relaxed than people might initially realise. In our last issue of Market Intelligence two weeks ago, we spent some time discussing the supply side. We also suggested that furniture business would possibly be slower and that this could have a serious impact, particularly on dairy cows. It seems that we now have to come back to these statements and maybe even correct some of our opinions and conclusions.
The last two weeks have actually delivered conflicting indications from different parts of the world and the reports and sources we are dealing with do not appear to be reading from the same page in terms of the present situation. Two of the most influential regions,
Reports appear contradictory
The ultimate question is who is right? Or are there particular reasons why impressions and market directions are so different considering both markets operate mostly on the same customer base and leather production? It might be that the
However, this leads us to a number of further questions. We have been, and still are, of the opinion that side leather business is still stronger, and has a more favourable outlook into the second half of 2006, than upholstery. Looking at the reports and taking into account the assumption about European and
What could the explanation behind this be? The most straightforward would be that one market report is correct and the other one is not. However, it does not appear to be so clear cut, there must be other reasons for the discrepancy. The only logical answer we can find is that it must be related to the pattern of demand for finished leather products. And this would mean that, particularly in upholstery leathers, the demand is increasing for medium and higher quality leathers in
Economical leather faces lull in demand
To some extent, this is not particularly surprising. Increasing prices for economical leather is quite difficult and it faces serious competition from product substitutions. Indeed, monitoring the present offer of furniture in the large discount retail stores, one gets the impression that cheaper leather is on its way out while alternatives in fabric and artificial leather are increasingly on display. This is difficult to explain apart from the proportionately high influence of cost increases on the finished product than for higher value articles and/or manufacturers’ fear of price instability.
Another explanation would be that Asian buyers are trying to put their preferred market on the supply side under more intense pressure and consequently trying to buy their immediate needs for relatively quick shipments in
Having said this, under the present market conditions it seems that the reduction of a few dollars would precipitate a wave of purchasing which will clean up what is being produced in the medium and higher quality US market. This is still not being considered a major market movement and we stick to our opinion that price changes within a range of 10% are just fluctuations with no real trends that are really worth mentioning.
A different situation might be seen in the lower quality end in the
Autumn trends difficult to predict
So for the short term, we cannot expect any real trend correction and it will not be until the end of the summer when more cards are laid on the table that final judgements about trends for the second half of 2006 can be made. We imagine we might get some really conflicting developments in different market segments.
The split in the skin markets has not actually produced any particular news. From garment leathers we hear reports that good quality doubleface is still seeing pretty strong demand and prices remain high due to insufficient supply. Quite the opposite applies for the nappa leather market. Skins for this purpose continue to pile up, although there were some reports of Middle Eastern buying in the
Market development remains uncertain
Things are pretty uncertain in terms of market development over the next few weeks. But we feel pretty sure that price variations in
