German Perspective—18.11.08
18/11/2008
What happened this week: The shelter from the US dollar that the European market had enjoyed for such a long time has been blown away during this week. A number of people knew it was coming eventually, but not when. Finally, US suppliers have capitulated and prices in particular for cows have gone into freefall.
Everyone had a story about prices, but in the vast majority of cases, prices for cows—depending on origin and quality—collapsed to levels anywhere between the mid-20s to 30s in dollar terms. Similar or even worse were there declines in Australia where people have spoken of prices well below US$20 on an FOB basis. This has put paid completely to the hopes of European suppliers. Males overseas probably did not get such a hard beating, but their prices fell again too and with all the negative news in the media about the global economy, Asian tanners have now finally joined their European counterparts in an excessively negative view on the development of hide prices and have slowed their production as well. We cannot remember such a negative environment in the history of the industry.
Although things are moving pretty much the tanners’ way and hide prices today offer fantastic opportunities for decent margins, companies have to show confidence if they are to bring leather orders home.
However, we believe that most people are not thinking too much about the future at the moment; they are much more troubled by the past. Overvalued inventory, reduced order books and in many cases a pretty restricted cash-flow need immediate attention. So, one is left with a handful of straightforward operations which are keeping their production running on normal levels. They are working as normal, taking their chance, continuing with their normal activities and enjoying falling raw material prices.
Trading during the week was consequently not easy and limited to the few remaining and regular customers. Most of these are in Europe these days because Asian buyers, in view of the trends in the US and Australia, have lost all of their courage and have almost fully withdrawn from our market.
This might also already be in relation to the upcoming holidays in Asia, which is limiting shipping times. It is interesting that there is very little interest so far from Asian clients for the time after the Chinese New Year. Those who are buying are asking only for quick and prompt shipment in limited volumes, but nothing for shipping programmes into 2009. Until midweek, markets and prices were still able to hold steady and the firmer dollar compensated for the pressure on the market. Later, the price slump for cows overseas came like a tsunami and makes a fair valuation of cowhides almost impossible these days.
The kill: The kill remains low and the credit crisis is also hitting the beef industry. Export of beef is pretty difficult today due to restricted finance and credit covers in many of the main export markets. The kill remains 20% below the normal averages of the season.
What we expect: The feeling among traders today is that the price correction should be enough and justify a rebound, but there is no real rational argument for that. Supply and demand are not in balance and there is a jam in the pipeline for medium and lower-end hides. With little or almost no indication, that leather demand is going to increase soon there is no indication how existing stocks and current production of hides can be absorbed by leather production.
| 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 | € 1,30 | Weakish |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,20 | Weakish | |
|
Dairy
cows |
15/24,5
kg |
22,5/23,5
kg |
13/22
kg |
20/21
kg |
€ 1,15 |
freefall |
|
25/29,5
kg |
27,5/28,5
kg |
22/27
kg |
25/26
kg |
€ 1,05 |
freefall |
|
|
30/+
kg |
33,5/35,5
kg |
27/+
kg |
29/31
kg |
€ 0,80 |
Weak |
|
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,35 | Weakish |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1,15 | Weakish | |
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 0,95 | Weakish | |
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 0,80 | Weaker |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 0,85 | Weaker |
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