Friedrich Sturm Report - 03.11.06
What happened this week: Another week has come to an end and almost nothing has changed. Demand remains steady, the leather industry is complaining with a full order book in hand, and the performance of the various market segments remains very diverse. This would make a difference if it met a raw material market with stock, but without any inventory it doesn’t make any difference at all for the market. The sales were decent again and all production has found a buyer. Despite the colder weather the kill remains well below expectations and, as far as the butchers are concerned, there will be no ‘seasonal’ kill this year. Whether this is true or not, since we only have about seven weeks to go before the Christmas break, it wouldn’t change anything anyway.
Prices were unable to benefit much this week, but some grades are still adding a fraction here and there. Superficially, everything looks fine but it is still hard to find anyone who is really happy as far as business is concerned. Taking a closer look, it is rather worrying and it is mainly those who have been in the business a long time that are the most concerned. The tanning industry is not prepared for the raw material levels we have reached and those with longer serving memories are the most worried. Others are more positive and explain that time has changed with new markets developing and a rock solid global economy. For these, the focus on the ‘old economies’ is the reason for such concerns and they believe that looking at the situation from a wider perspective helps to provide an explanation for the present situation. No matter who is right, high price levels have always weighed heavily on margins in the industry and this has never been without consequences.
Looking at the fringes of the raw material markets, we are starting to hear that lighter weight calf and kips are facing some more price resistance as a result of article decisions taken by manufacturers in their attempts to reduce and protect against leather prices. Some leathers have been shifted to other ovine raw materials. If this is true we will have to see whether this will be compensated by general growth or whether it could have an effect on the market. One thing is certainly true: the use of various leather types in this segment is much more flexible. Locally, the market at the abattoirs is still being pushed by some obscure movements. Either there will be a shift among the key players toward automotive tanning or established players are trying to hide their real ‘need to buy’. The prices paid and roads taken for the specific raw materials dominating this production have not been corresponding with the messages sent out from the industry for a while and there must be a reason for this.
The kill: As mentioned earlier, the kill is not really improving. The weather is now pretty cold and should normally support the kill and beef consumption. Most people are not expecting anything major anymore and maybe we slaughtered most of the annual kill in the first half of the year. At least weights are still rising.
What do we expect: Whether we like it or not, the tensions continue to rise. ‘One tanner per week’ is starting to take an opposing position against the market trend. This has not been overly successful yet, but the pressure is mounting. The weekly market remains trapped in the present situation: solid with a little upside potential only for a few selected grades and little downside potential until the unforeseeable happens. This will persist until the pressure gets too much.
