What happened this week: This week has basically been a copy of the previous one. Demand for the few hides available was shown, but mainly came from the Far East. European hides, which are acting as a substitute for US material, are finding homes and everything on offer is being taken. However, attempts to push prices higher are failing. Consequently, prices remained within the very narrow trading range which we have been seeing for a long time. So once again, almost all of the weekly hide production was cleaned up, although a question mark still remains over the extra heavy bulls. European tanners are still fairly negative about margins and their situation in general. With the consistent and strong demand from the Orient, their attempts to depress the market were still in vain. Furthermore, there is one thing that cannot be denied. Reports from various parts of the world are displaying the same mood. The order books are well filled and the need to secure raw material supplies keeps tanners busy monitoring the various markets and constantly purchasing. So, the gap between supply and demand remains valid and, except for some specialised hide productions, most are well cleared across the globe.
The cash flow problem is also becoming an increasing cause for concern. While in Europe margins are the highest burden, the major problems for China are related to the new import and VAT regulations. The tanners, who are not supported by an efficient and supportive local government in receiving quick refunds, are seeing their cash positions shrink as quickly as their VAT credits are rising. So the main concern continues to be the financial situation, while demand for leather and leather products is still not causing any trouble in the general market.
Since this has been the situation for some time and, as everyone knows, it cannot really last forever, the question that remains is: will the by-products from beef production follow other commodities to sustained higher levels or will increased leather prices, the outlook for further advances and the cash-flow problems eventually have a correcting effect on the price levels? At present, everything seems to support the first option. If the present strong demand for leather continues, a small number of tanneries deciding to make production cuts, or failures due to financial bottlenecks could change everything in the present imbalance of supply and demand. A change in market structure is also likely to be a side effect if prices remain high and demand continues to exceed supply. The more the beef industry grows in confidence in placing hides into the market, the less tanners can realistically expect any reward in their desperate wish to see lower raw material cost. Weekly sales were mainly seen for dairy cows, ox/h and low grades. Males are still missing from the slaughter mix.
The kill: The total kill is still on the low side of the seasonal averages. To make it even worse, the average weights for cows in particular are also far below normal levels for the first quarter. With the carnival weeks ahead of us, very little improvement can be expected.
What do we expect: With Asia departing for the holiday season, activity should quieten down in that part of the world. However, this will change nothing whatsoever in the present market situation. The trend will continue to be steady for most of the product range and only small price variations should occur over the coming weeks. So, tough conditions and little excitement continue to dominate the market.
