German Perspective 06.05.08
06/05/2008
GERMAN PERSPECTIVE—06.05.08
What happened this week: This week was a non-event. We have entered the traditional ‘after Hong Kong spring cycle’ and market activity slowed down significantly.
With the holiday on Thursday in most countries and the vacation in China most of the market participants were either on holiday on in holiday mood. This left very limited business activity and sales for the last few days. Most of the weekly focus was on the currency market with the US dollar continuing its correction. The currency has now gained almost 4% versus the record low seen during the Bologna show, but in the end it did not help much as there was very little interest from overseas at any price.
Anyway, if the present direction is not just another illusion (as we have seen many times over the past year) we might enter into a new trend, with the euro declining and the dollar gaining. This would at least be a bit of a help for the problems of prices in the euro zone.
Before this can have any effect, it would need more interest and demand from the overseas markets and this seems not to be the case in the immediate future. The holiday break will at least for the next week or two keep market activity on the low side. The same applies also for letters of credit and shipments which are also affected.
Many of the concerns we had that the environmental policy in relation to the Olympic games in China could have a negative impact on tanning activity seem to be coming true.
This adds to sharply rising production costs and the problem of the slowdown of the global economy and seems to be causing small and medium-size tanneries significant problems to maintain their production levels. Although activity should pick up a bit after the holiday break, a lot points towards a slowdown until at least after the summer.
Bigger companies are far less touched. The global demand for consumer goods remains normal even if the growth may slow down a bit. Producers may relocate productions for cost reasons and this may cause short-term interruptions, but the total level of demand will not be altered by much.
Sales for the week were again rather coincidental. Some follow-up from Lineapelle in Bologna was noticed and some sales of low-grade and lightweight calf and kips took place.
The lower kill and lighter weights have lifted the pressure on the standard grades for the European industry and the regular programmes are enough to clear the current production of hides.
What was missing was the extra business from the export markets in Europe and the Far East and if there is anything good at the moment it is the rising dollar, which will at least offer a bit of relief on calculations if there is more interest from the export side in the weeks to come.
Prices were about steady, but with the small volume of sales this week sales cannot actually be called representative for a real market level.
The kill: The kill continues the seasonal decline. With the holiday on Thursday and the next one to follow next Monday, it is not going to be a burden. Weights are also rapidly falling now, which is going to continue for a while and we now enter the low season until autumn. News reports about a sharp fall of food consumption due the rising prices may also affect slaughter in the short term. What we expect: From next week we expect very little. A rebound of interest would need at least another week and if the dollar can extend its gains there might be better opportunities again. A bit of the competitiveness lost over the last weeks has been regained now, subject the other overseas markets remaining steady in prices.
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