German Perspective 14.03.08
17/03/2008
GERMAN PERSPECTIVE — 14.03.08
What happened this week: As far as we are concerned business activity was not really worth mentioning. Patchy and coincidental sales were all what we could trace this week. The main focus remains also on the financial market were the US dollar continues its freefall to levels around e1,56 and oil and other commodities to rise to new record levels every day.
Most of the trade seems not to be too impressed by the situation and continues to take a ‘business as usual’ attitude, but we have to admit that we believe that the long- as well as the short-term effects are going to harm the trade much more than one might expect today.
If there is not any major change in the situation, inflation is going to be the next major global problem, and that is never good for the consumer. For the moment however, the weak dollar is further depressing the euro values of European material. Anyone who believes he can escape by selling to the European tanners will only have short term solution.
A lot of European hide prices still need adjusting to come to a fair international valuation. The question that is left open is if the fundamental demand for leather is strong enough to cushion this market and even to give it a boost.
That the fundamental demand for hides cannot be too bad can be seen in the strong sales performance of the US market where last week a decent amount of hides was sold. Buyers are preferring presently dollar-based raw materials to escape from any potential currency risk.
From the leather market one cannot hear any real news, except may be the problems of those who are producing in Europe and were used to selling a certain part of their production to overseas markets. Even those who are supplying market niches cannot achieve profits any more—even with their specialties—if they were not already selling their US dollar budgets in 2007 for 2008.
There are only a handful of tanners left in Europe today who still find business satisfying. Even when they have been able to increase the price of leather—as has been possible in some cases, for example side leather—higher raw material prices have made life difficult. The biggest problem in this is that the net income consumers enjoy is decreasing while the costs they face are rising.
In Germany, for example, official statistics have just been released showing that net incomes have not risen for the last three years, and with heating bill for this winter also for the next season going up, families will have less money to spend this year.
Any attempt to raise prices in view of the falling US dollar were in vain, which means a fall in euro terms of about 5% has taken place in the last two weeks alone.
The kill: The kill remained pretty steady again, but should fall in next weeks because the Easter holiday will mean two shorter working weeks.
What we expect: Our expectations still run low. Certainly the tanning industry is still in need of hides, but concerns about the future are pretty high. We still wonder what could trigger more interest to buy, but maybe the fear of inflation is holding interest back. Certainly anyone who has cash to spend, and hope, could buy on the assumption that the manufactured goods can be sold at a profit eventually.
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