German Perspective—02.09.08
03/09/2008
What happened this week: After a number of pretty quiet trading weeks when almost everything was on hold, trading this week returned to what we might call ‘normal’. Interest for hides returned and in the end a fully sufficient number of hides were sold.
While prices in Europe were just about steady, there was only moderate interest from Asia. As far as sales potential was concerned, it was nice to see that Asian tanners returned to the market after their long absence, but considering the freefall of the US dollar, this interest could not really be turned into anything remarkable.
With all other markets around the globe being steady or, possibly, a fraction lower even steady levels in US dollars meant a loss in euros compared to a month ago, a loss of, easily, EUR 1–2 per piece. So, the option is either to wait for better times or to bite the dust.
Until the dollar recovers—and this is not really in sight at present—we would need a massive rise in raw material prices overseas to compensate for what the euro zone is suffering at the moment. We should not forget, that the dollar lost almost 4% just in a few days recently. This cannot happen without reactions in the market. With the declining US currency, even better sales are not feeding any hope for a fundamental market recovery soon.
One way or another, sooner or later, the market has to accept that still something close to 70% of global leather-related business is based on the value of the US dollar. This is definitely bad news for the moment.
The good news is that tanners need and are willing to replenish inventories, albeit still with great caution and depending on the stability of their order books. While from the European tanning industry there is still little positive news to be heard, it seems that the situation all around Asia is a bit more stable.
Having said that, it must also be accepted that the boom times are over. As far as China is concerned, the export business for leather—in particular to the US—is far less than in the past. Pressure from the stricter controls of environmental issues and the Olympics can still be felt and tanners—as a polluting, energy- and water-consuming industry—may be among the first to slow down productions. Consequently, only fully licensed operations are willing to carry normal inventories, with others preferring to operate hand-to-mouth rather than run any risk on raw material stocks. The only good news from that part of the world are rising domestic raw material prices, which could make imported hides more attractive again.
While the main interest this week was again for dairy cows, the situation with males remains worrying. Excessive material which cannot find homes in Europe is becoming less and less attractive in price and the gap between local levels and international prices is slowly reaching figures that can hardly be bridged any more. Without a sharp gain in US hides for example, salted EU hides could face a tough spring.
The kill: The kill remains on pretty steady levels. However, anything other than slowly falling numbers, in particular for cows, would be a surprise in the weeks to come.
What we expect: There is little change. Traders that have a strong customer base can still move hides, just not at the right price. With the falling US dollar, returns are rapidly eroding, sooner for those who are exporting raw material directly, later for those selling to EU tanners where the problem will still come, even with a delay. For the moment we can only see lower prices for cows in euros and raise the question when, and at what price, stocks of salted males will finally be liquidated.
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