German Perspective - 7.4.15
What happened this week: The trade had waited for so long to meet in Hong Kong for the APLF leather fair. Traditionally it is a landmark in the first half of every year and most people take the opportunity to travel extensively in Asia to visit customers and other contacts related to the business. Usually people travel before the show and consequently the three-day event is the final melting pot of all the impressions and results the trips may have generated. After all the uncertainties and changes the leather business has undergone after the peak and record prices of 2014, the expectations and curiosity couldn't have been bigger this year.
The raw material, leather and machinery business have been almost completely squeezed into one hall with the aisles becoming very narrow and so it was very difficult to get a real feel for the number of visitors this year. The mornings and the afternoons were pretty quiet while around lunchtime it seemed to be very full. In any case a number of traditional visitors and exhibitors from China were missing and most people had the impression that there was less activity than in the previous years. However, this could be a bit psychological with the general mood in the past years being much better.
As far as the raw material business was concerned the opinions were extremely wide. However, it seems fair to say that the majority of the hide suppliers did not have a very positive impression. In particular, the US dollar-based business has become tough as a result of the strong US dollar of the past months.
If one really needed still the confirmation that leather demand has declined since the first quarter of 2014 this show should have given the confirmation. There are always exceptions, but as a general statement it is definitely true. Substitution of leather due to the high price levels of last year, difficult economic conditions and the problematic production environment in China left their traps in the business.
Automotive leather might still do reasonably well, but shoes and leathergoods have seen a noticeable slowdown. Although a number of people are claiming that supply has been reducing, demand has fallen to a larger extent. The stories of low inventories positions with the tanners in Asia could not be proved. Quite the reverse; there were a number of Chinese tanners and traders reporting excessive stocks. With the end of the West Coast US strikes, all of a sudden many more hides are arriving which are not really needed.
There is little hope for improvement in leather demand in the coming months. There are still a good number of people who do not see it that negative, but they are the same people who have not been willing to accept any problems in the past months.
Despite all the negative undertones, business for European suppliers remains significantly easier due to the currency factor. However, it feels that this is just borrowed time.
During the fair a normal amount of business was booked, because we are still one of the most attractive alternatives. However, no desperate demand, no changes in prices, just the normal repetition from regular buyers what would have most likely also happened from home.
Interest was across the board. No big volumes, just a bit of everything from low grades up to bulls which indicates again that there was no special demand nor need for raw purchases.
The kill: The kill remained steady, but this week and next are cut by a day what will reduce the numbers accordingly. We are still waiting any impact due to the end of the milk quota, but nothing has been seen so far.
What we expect: Traditionally are the weeks after the HK leather fair pretty quiet. We learnt that tanners are either well stocked or even overstocked and only a serious and short term uptick in leather demand could boost raw material demand. Pretty unlikely. With nobody interested in any sharp correction and everyone interested in a moderate and controlled slide we have a fair chance this might happen. At least in Europe chances are good. We just have to wait and see if the expected correction overseas will be more pronounced and could eventually produce new needs for more correction in the European market. This is a likely scenario.
