Friedrich Sturm Report - 07.09.07
What happened this week: The All China Leather Exhibition in Shanghai, which took place last week, traditionally marks the end of the summer season. Here, the trade normally gets the chance to see what the business outlook and prospects will be for the rest of the year. The show was well attended and hardly anyone, of those we expected to come, was missing. The event went as expected, with little emotion and busy schedules, at least the first two days.
In the end, the exhibition delivered clearer and better indications about the market than we had expected, although it’s true that not everyone was of the same opinion.
As far as our findings go, the main results were that the leather business in general remains quite steady and should be able to maintain the high levels it has reached over the past year. However, the situation seems not to be the same for every sector. While handbag and accessory leather producers were far the busiest and may have been happiest during the show, others, such as those producing upholstery and even shoe leather, are facing an increasing number of problems.
They main issue is, while demand, in terms of units, is certainly not going down, the price structure of products is changing. Changing, in this context, means declining even further. Consequently, the demand for lower-cost raw materials is high; at the moment, demand for them is outpacing the offer. Some companies are already going as far as to talk about a shortage. At the same time, demand for medium- and higher priced raw material is declining. This is already clear from the growing price pressure we have seen recently on the medium- to higher-priced categories of livestock, such as heifers and steers from Europe and America. It was clear at the exhibition too. There is good demand for low grades and steady demand for dairy cows. But interest in bulls was pretty limited, and the chances of placing some of the lighter weights were extremely limited.
Some of our European colleges had come to Asia with a reasonable volume of hides to sell after the summer, but, at least as far males were concerned, their success was limited.
As far as prices were concerned dairy cow prices were steady or even fractionally higher, but this small rise was unfortunately absorbed by the continuing fall of the US dollar against the euro. It is anybody’s guess what the real price level was. For the time being, it looks as though the ideas of buyers and sellers of what a fair price would be couldn’t be further apart.
Economic news from the US is continuing to shake the financial markets and add to the general uncertainty, increasing the pressure on products in the middle-price segment in Europe and the US. It remains to be seen how long growth in emerging markets can continue to compensate for the mounting pressure in the old economies. A further weakening USD is going to add to the confusion.
The kill: As expected the kill numbers rose further. The slow season is behind us and the numbers should stay stable in the weeks to come. While the weights for males are normal, females are already lagging a bit behind with their averages.
What do we expect: It is difficult to find a general statement for the market. The situation looks pretty much unsettled for the future with cows having presently a much easier time than their male counterparts. We expect increasing pressure on the prices for bulls, with price adjustments likely. Without the high level of general uncertainty, the situation would not be unusual for beginning of September as the market normally only sorts itself out in October when productions are back in full swing.
