German Perspective 08.04.08
08/04/2008
What happened this week: We think it is not so easy to draw a clear conclusion form the Hong Kong leather fair this year. Watching the massive export sales figures again from the US one feels tempted to believe that worst might be over and the situation will stabilise if not recover soon. However, there are so many question marks around these numbers and the impression one got from the talks around the fair does actually not comply with these records communicated.
However, it is true that the leather business in the emerging markets remains much better than in the rest of the world and the consumption of leather is certainly not significantly lower than in 2007. It is also true that production and transportation cost around the globe are significantly up over the past 12 months which leaves less value for the raw materials if leather wants to stay competitive with other substituting products.
It is also true that the free fall of the US dollar in the first quarter scared a lot of buyers and they prefer to cover their needs from the US where little influence from currency movements can be expected. Even with the recent rise in prices in the US, hides there still look more competitive than many of the potential options.
With the strong pressure on leather prices the demand for economical hides remains pretty strong. South American and Australian hides haven’t actually declined by much and may even have moderately increased over the first quarter. There is also no lack of demand for these materials either. For European hides the situation remains however difficult at least when it come to the grades, which need to find more home in Asia with the declining production in Europe.
The problem is entirely currency related, because the market was not willing to recognise the 8% drop in the US dollar in the first three months and this has catapulted many of the standard grades out of the market range.
Looking at the sales from the US one has to believe that a lot of demand has shifted across the Atlantic for the coming months as a protection against further surprises from the currency market. In particular for dairy cows the demand has slowed significantly with regular buyers pushing their decisions forward. So either they have already bought elsewhere or they are hoping for a recovery of the dollar to save a bit from there.
Sales were pretty much irregular. While cows had been a disappointment ox, low grades and a few bulls did much better than we expected prior to the show. As a consequence sales were not bad. Also the demand for skins and sidelines remained steady and reasonable.
The kill: The kill is a bit less than we expected. It seems that the end of the first quarter has led to players taking a break and we enter the seasonal decline of numbers and weights now. The next weeks will tell us a bit more about where we are heading. What we expect: Heavy bulls and low grades as well as ox seem to have found a temporary floor now. A firmer USD or a lower kill could even support the market in the medium term. For dairy cows we think that some more correction in euro need to be looked for if sales run smoothly now.
| Type | Weight range | Avg. green weight | Salted weight | Avg. weight salted | Price per kg green weight | Trend |
| Ox/heifers | 15/24,5 kg | 22,0/23,5 kg | 13/22 kg | 20/21 kg | € 1,45 | Weaker |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,33 | Steady | |
|
Dairy
cows |
15/24,5
kg |
22,5/23,5
kg |
13/22
kg |
20/21
kg |
€ 1,46 |
Weaker |
|
25/29,5
kg |
27,5/28,5
kg |
22/27
kg |
25/26
kg |
€ 1,32 |
Weaker |
|
|
30/+
kg |
33,5/35,5
kg |
27/+
kg |
29/31
kg |
€ 1,15 |
Weaker |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,50 | Weaker |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,40 | Weaker | |
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1,20 | Steady | |
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1,05 | Steady |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1,10 | Steady |
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