German Perspective -13.1.15
What happened this week: After a two-week break the world is beginning to return to normal and production is starting to reach normal pace.
Times are getting more difficult as one can see from the news and the world is not the same as it was a year ago. Numerous tensions and political changes around the globe, and massive changes in the commodity and currency markets have set different conditions for the start into 2015.
We know that we were the party crashers in 2014 when we did not believe the stories that tried to justify the record price levels for bovine hides, and many of our international colleagues were not happy about any criticism, because for a seller nothing is more comfortable than a rising market. Why the questioning when the situation is so cosy?
In Europe we are grateful that two very convenient situations gave us so much shelter – namely, the rigid position the sellers in the Americas took and the extended decline of the euro in the last quarter. This gave us so much protection that we were able to get through the correction with very little damage.
Many are beginning the New Year with positive arguments, but we have to question whether the fundamental conditions are more favourable than they were six months ago. It is true that tanners are holding less inventory than six months ago that the tanners with leather orders taken in the second half of the year have better margins now than they had some months ago. However, there are questions over whether the price for leather is competitive compared with non-leather alternatives and whether the volume of leather orders is sufficient to sustain the raw material market at today’s levels.
One would also be advised to check the currency effects of the production country and its affect on domestic and export consumption. The parameters have changed and this is influencing the value of many hide types. In addition, we have to consider that the demand structure in the leather market has also changed. The focus on the steady demand of premium car leather is not enough to understand the price trend of hides in 2015. The stocks of wet blue are not leaving the impression that the market is undersupplied.
Trading in the past weeks was light. There was a bit of interest from Asia, always for the same merchandise. Dairy cows, some ox/heifers and low grades, in combination with the firm dollar, found enough interest at lower prices in USD and steady revenues in EURO - if one was interested to sell during the holidays.
Business in Europe has been at a total standstill. We believe that the reduced slaughter of the past weeks had either been sold forward before the holidays or was moved until today. Letters of credit and payments are coming for about 75% of the business but the remaining quarter remain a struggle.
The kill: The kill was low during the holidays and we expect a return to normal.
What we expect: We think changes will only happen in conjunction with speculative action or further turmoil in the currency market. Some business prior to the Chinese New holidays can still be expected, while in Europe the next round of business has still got time until the end of the month. The weak euro is still protecting us against bad surprises.
