German Perspective 29.04.08
29/04/2008
GERMAN PERSPECTIVE—25.04.08
What happened this week: The market tried to get new and better indications from the Lineapelle fair in Bologna. The show in April is only a pre-selection and is pretty close to the show in Hong Kong, but owing to the high uncertainty there was a lot of interest about the feelings and results of this event as well.
The good news is that, despite the global problems as far as food and energy prices are concerned, the number of visitors on the first two days was good or better than expected. One was also impressed by the fact, that not many tanners were complaining about a lack of orders.
This left some hope for a turnaround and prompted discussions about whether the optimists who have been trying to push the market for a while might be right.
After this first positive impression, however, the market realities became the focus of discussions again and calmed any excitement down. For the vast majority of the tanners profitability remains a tremendous burden owing to the sharp rise in costs. For those who do not have a solid capitalisation, finances are becoming a big threat.
So the whispers about financial difficulties and late payments are becoming louder these days. This applies mainly for the northern Italian market.
The rise of chemical and energy costs cannot, in most cases, be recovered. As far as fashion is concerned not much really new was on show in Bologna. There was still some patent leather and prints, and a lot of bright colours. A few are talking about a return of more classical leathers after the sharp correction of light quality material, but there wasn’t too much evidence of this yet, which was not a surprise as tanners were showing their leathers for a summer season.
It was also noticed and confirmed that the luxury segment is still not slowing down, while the lower-end segment is suffering from a lack of cheap raw materials these days.
As far as sales were concerned we failed to encounter any interest or rumour of importance. Yes a few sales were made, mostly as a result of regular programmes or negotiations, which are done as a tradition during the fair, but we couldn’t sense any major interest or need to buy; quite reverse—a lot of the Italian tanners are claiming to be well stocked and to have enough inventory for some time.
The US dollar was also a story this week. In the morning of the first day of the fair it reached the magic figure of $1.60 against the euro, which came as quite a shock and increased the cautious mood.
Since then the greenback has gained some ground, perhaps as much as five cents by Friday. Not that his has changed much, but at least it offered some psychological relief for the moment. Prices during the week were mostly steady. For heavy hides a fraction more was paid, but most other grades were seeing strong resistance. And for light material, bids were even lower than previous levels. For the few sales made we would call the price level about unchanged.
The kill: The kill is now moderately falling and so are weights. Warmer weather lets the grass grow and farmers are busy with other issues than bringing cattle to market. The present fall in milk prices may have an effect on the slaughter. For the weeks to come we expect further declines in weight and numbers as part of a normal seasonal development.
What we expect: There is no sign of any improvement in the fundamental market conditions. The second quarter is always slower as far as kill and production is concerned. From the demand side we don’t see much support so it needs to be the kill or the dollar that will cushion market levels. If the dollar continues to rise it could protect against further price declines in euro terms. From the leather business as such we don’t expect much support for the moment.
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