German Perspective 29.02.08
04/03/2008
What happened this week: After a number of pretty quiet trading weeks where almost everything had been put on hold, trading this week was returning to what we might call ‘normal’.
Interest in hides returned and by the end of the week a sufficient number of hides were sold.
While prices in Europe were just about steady interest from Asia was only partly welcome. Asian tanners finally returned to the market after their long absence but, considering the free-fall of the US dollar, they returned with little pleasure.
With all other markets around the globe being steady or possibly a fraction lower, even a steady exchange rate for the dollar compared to one month ago would have meant a loss in euro revenues of, easily, between e1 and e2 per piece. So, the option is just either to wait for better times or to bite the dust.
Until the dollar recovers—and this is not really in sight at present—we would need a massive rise in raw material prices overseas to compensate for what the euro zone is suffering at the moment. We should not forget, that the dollar has lost almost 4% in just a few days.
There cannot fail to a reaction to this in the market. With the declining US currency, even better sales are sparking little hope for a fundamental market recovery soon. The market has to accept that around 70% of the leather business is based on the value of the US dollar. This is definitely the bad news for the moment.
The good news is that tanners need, and are willing, to replenish inventories, albeit with great caution. While from the European tanning industry there is still not much positive noise, it seems that the situation in Asia is a bit more stable. Having said that, it must also be accepted, that the boom times are over.
As far as China is concerned, export business for leather—in particular to the US—is at a far lower level than in the past. The stricter controls of environmental issues as well as the upcoming Olympics can be felt and tanning—as a polluting, energy- and water-consuming industry—may be among the first to be forced to slow down production. The only good news from that part of the world are rising domestic raw material prices, which could make imported hides more attractive again.
While the main interest this week was in dairy cows, once again, the situation on males remains worrying. Excessive material which cannot find a home in Europe is dropping more and more in price, and the gap between local levels and international prices is slowly reaching figures which can hardly be bridged any more. Without a sharp gain in US hides, for example, it could become a tough spring for salted EU hides.
The kill: The kill remains on pretty steady levels. However, anything other than slowly falling numbers, in particular for cows, would be a surprise in the weeks to come.
What we expect: There is little change. With a strong customer-base, hides can still be moved, but perhaps not at the right price. With the falling US dollar, returns are rapidly eroding. This is happening even more quickly for those who are exporting raw material directly, and slightly less so for those selling to EU tanners. For the moment we can only see lower euro prices for cows and wonder at what price salted males will have to reach for stocks to be finally liquidated.
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