German Perspective 01.04.08
01/04/2008
GERMAN PERSPECTIVE—28.03.08
What happened this week: Most of the trade is now for the results and impressions from the APLF leather fair in Hong Kong, which is taking place this week. The first impressions received from Asia have confirmed that the situation in the tanning industry remains reasonably robust.
Having said that, it is also true, that the boom phase we saw between 2006 and the same event last year is over. The tanning industry is consolidating and the impression people may have had of apparently unlimited potential in the market and that demand would always outpace supply has entered into a period of shrinking.
Production capacity is becoming smaller owing to a number of factors such as tax policies in China, but also due to falling profitability in 2007. Consequently the market has reached a more balanced situation, which was already apparent in the second half of 2007.
So, we are now in a ‘survival of the fittest’ situation and profitable and successful operations feel at the moment that the tough competition they have faced for raw material in the recent past has become easier and that they now have a fair offer to choose from.
With ongoing massive pressure on leather prices, however, the search for economical material continues to make the lives of European suppliers difficult.
The weak US dollar and the failure to adjust to market levels at the abattoir over the last few months have catapulted our hides to the upper end of the price range, making negotiations and sales pretty difficult in Asia at the moment.
As a consequence tanners are asking for sizeable offers and one couldn’t say that there isn’t any interest. Most buyers have decided to wait and see what comes of their meetings in Hong Kong first and feel that they can either buy hides now or in 10 days without risking too much variation on price. This isn’t making life easier, because nobody knows where the dollar is going to go in the meantime.
To put this another way, if the dollar were to stay closer to e1.50 than e1.60, the situation would be much easier because of the boost the market has had from moderately rising prices (in dollars) over the past couple of weeks.
So, the summary as APLF gets into full swing could be that there is still decent interest for standard hides at between 3% and 10% below the market, and tanners want to check first next week to see if they can find enough supply in more favourable markets before seriously considering and negotiating on central European hides.
The good news is that the leather business remains steady at decent levels. The bad news is that some players may try to make too much of the present situation and look elsewhere for too much of their supply. As pessimistic as this statement sounds, some sales still went through in recent days, with the interest dominated by low-grade dairy cows and ox/heifers. Reluctantly, buyers booked a few smaller contracts for the sake of continuity and with an eye on securing larger offers after seeing the results of APLF. It is interesting to mention that there was, at least, more interest in light calf and kips again, which had been dormant for quite some time.
The kill: The kill was still steady, but weights are already starting fall significantly. After the Easter break the kill should get back to normal, especially with the weather still being reasonably cold.
What we expect: Despite the price problems, business should improve a bit next week. Buyers will not rush, but if the price is right for the Asian grades, hides can and will be sold. The standard European grades look a bit better. This leaves us basically where we were last week. There might be some adjustment needed on export grades, but hides should continue to move. We will know the price levels over the next two weeks.
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