German Perspective - 20.1.14
20/01/2015
The sharp revaluation of the Swiss franc has demonstrated how vulnerable the European economy still is and now all eyes are on the European Central Bank’s decisions next week. Will deflation become a problem or will the much lower energy prices boost investment and consumption and help the economy?
From our perspective, this week was very much influenced by the issues on the currency markets. Many long-term business deals have been affected, not so much on the raw material markets, but more for the finished leather side.
Buyers holding US dollar leather contracts from 2014 are beginning to ask for currency adjustments. This reflects how much the roller-coaster rides on the financial markets can influence our business.
Anyway, the confusion this week was certainly not good for the hide and leather business - the fluctuations are just too large to be managed within the normal daily commercial decision. A few percent in a longer period of time can be handled, but such moves like those seen this week cannot, and have long-term consequences.
The euro fell against the dollar in a certain sympathy with the Swiss franc. This has shifted values again and with a stable or even slightly firmer market in the US, the drop of the currency market could be taken with stable export prices in USD.
However, there are still unsold hides around and it will be interesting to see if sellers will be willing to use the higher USD to promote more sales by lower prices or if they rather want to protect themselves against a possible reaction at the abattoirs in February.
One way or another, the currency changes will influence the market by quite a bit and the next weeks are going to be decisive. Many budgets made in the last quarter of 2014 may have to be re-adjusted. Companies working in euro are getting increasingly competitive. Low energy prices and the weak euro are paving the way for successful business - if one has the right product or service for the international markets. The conditions are certainly significantly better than they were a year ago and it all depends on the general trend of the global economy.
Trading and sales this week have been pretty quiet. The week started with some activity, mainly for dairy cows again. However, as the week progressed, interest dried up and only today some buyers were testing what the new situation would mean for prices. When they figured out that one would not be willing to pass the currency move on in terms of reduced prices, interest vanished quickly. Some might not be too happy with what they bought in the past weeks.
So sales were limited this week and now there is not much time left to book sales before the Chinese New Year. In Europe, tanners have now to begin considering how they are going to handle the situation for their fresh hide deliveries for February.
The kill: The kill has picked up nicely and this week saw a decent number of hides coming in. The usual reduction which one normally experiences in January has been far less pronounced than in previous years. It seems that this might continue for the rest of the month.
What we expect: It might need a few days more until the dust settles and it is difficult to judge what the full consequences are going to be. For the moment it supports our EURO prices, but whether this is going to be invested into lower USD is the big question for the coming weeks. It is hard to know how the European tanners will deal with it. Those with export business will benefit but others could be confronted with higher raw material costs without any chance for compensation.
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