German Perspective - 17.3.15
17/03/2015
It is the balance of prices and markets that has changed, not leather demand. However, a difference of more than 25% in the relation between the euro and the US dollar is not something that can be ignored and nobody will forget that only six months ago we were trading the euro almost 25% higher.
In Asia, the situation is not so pronounced and people are simply concerned with the best options, but currencies are now playing an important role in other parts of the world. Importers of crust from South America that have not totally hedged the currency exposure are facing serious problems.
No matter what the individual gain or pain everyone should be aware that this is only a temporary issue. Raw material prices adjust relatively quickly to currency issues. It will be interesting to see what the absolute price for commodities is going to be, which is determining the price for leather and consequently the demand.
In short this means either prices in euro will go up or prices in US dollar will come down, or a combination. When we consider that leather prices had been an issue before and the benchmark prices in US dollars have changed for some time, it is really becoming a tricky game.
The European tanners that are buying and selling in euros are wondering what is going to happen to their purchasing prices. On the other side, many are trying to redirect their purchases to euro instead of US dollar, because they expect the euro decline to continue.
We wouldn't be surprised to see some kind of yoyo effect in the near future. For the time being it is complicated because a number of suppliers don't want to see any downward pressure on prices prior to the Hong Kong fair [APLF, March 30 to April 1].
However, it must be difficult to explain to buyers why prices have gone up, in US dollar terms. Leather demand does not seem to be picking up anywhere and the price pressure hasn’t faded either.
After the reopening of the Asian factories after the Chinese New Year break there was only a short-term flurry of interest and, in our case, we haven't seen customers rushing for hides during last week either. People are continuing to buy hand to mouth and we can't find anyone who is optimistic enough to take extended forward-purchasing decisions.
Sales were consequently not brilliant even though customers from overseas should be queuing up for European hides, trying to benefit from the currency advantage. However, very little of it, just some patchy interest for dairy cows and low grades. Prices in US dollars were about steady which, considering the exchange rate, is positive.
The kill: The kill is down and we are now waiting for a bit of more activity in the next weeks due to the Easter holidays. However, whether that improves beef demand remains a question.
What we expect: We are happy that not much needs to be done on the selling side. Everybody is waiting for the reaction of the Asian tanners and Hong Kong. The results of the next 2 to 3 weeks of sales in Asia will be the determining factor for the EU market and so it is pretty likely that we are going to see very little activity until everyone thinks they have a clearer picture.
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