German Perspective—06.01.09
12/01/2009
What happened this week: Towards the end of 2008, at least in Europe, most tanners closed their production and it was immediately clear that they planned to take longer than the normal break, with closures continuing well into January 2009.
The last quarter of 2008 was so demanding and exhausting, that many (not only tanners) are quite happy to have had the chance for a longer break. This might offer not only time to relax and recover, but also to analyse carefully the situation of individual companies and their options for the future.
The last full working week of 2008 delivered quite a lot of activity as well as excitement. Hide trading was again pretty active and the amount of hides sold was pretty satisfying, but the rollercoaster ride of the US dollar destroyed quite a bit of the joy one might have received from market activity in the final days of the working year.
Before recovering on the Friday before Christmas, the dollar lost more than 10% in just a handful of trading days which made it impossible to secure any safe price calculations. The move also swept away the hopes for a recovery of prices in Europe. This means that abbatoir prices need to be adjusted again to compensate despite the reasonable movement of hides. We remain a bit careful about all of this, rather than too positive.
Before we can actually hope for a bottom or even for a turnaround, sales need still to be turned into shipments and, even more importantly, into payments. December activity may only have been a flurry and not yet a sustained return to more tanning activity. It seems that there are still a few obstacles on the road to better times.
However, it is true that the hard facts are starting to look more positive now. Despite the Chinese New Year holiday (the date of new year is January 26) clients are opening their letters of credit, and even arrivals in the peak holidays season are frequently accepted. You don’t do this if you don’t need the raw material.
So it seems that the situation in Asia is on a stabilised track, while things in Europe still look quite vulnerable. From southern Europe there is still little good news, and the news from north of the Alps is worse. Side leather tanning is still doing reasonably well, while upholstery is still performing badly. The biggest problem however will be payments in the months to come.
Interest at the end of December was focused on mainly heavy and good quality material. Many tanners have taken advantage of lower price levels and the black-out of the automotive tanners to secure good quality material for their own purposes. Looking at the price spreads today between the good and the bad, tanners are able to buy today from the top end of the list—even at that level all prices have been well below one euro for a kilo.
That means it makes little sense to buy lower quality for price reasons. Sales were mainly focused on bullhides and prices were again fractionally lower.
The kill: The kill stayed strong until the very last days of the year. The seasonal kill is getting later and later in the year and what we were missing in November we get in December. Weights are also still where they should be at this time of the year and this trend should persist.
What we expect: Except for minor activity from Asia and the Middle East, it has been a very quiet Christmas Season. The only other possibility is that some players who feel that they might have missed the market would still generate some purchasing volume in the early weeks of 2009. Currency will dictate the prices now. We wish all our readers and business friends a happy and peaceful New Year.
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