German Perspective - 21.04.15
21/04/2015
Generally slow demand for leather, generally inflated stocks of material around the globe, a split market that is in trouble and weighing on tanners’ returns, inflated physical shipments of hides after the end of the west coast labour dispute in the US and clear financial problems among tanners in China is a pretty dangerous and complicated mixture to be digested by the market at the moment.
A number of people are trying to stabilise the market and say the bottom is close. However, rationally, it is quite difficult to find arguments for that other than the sellers possibly not lowering the prices. Prices should be always a reflection of the balance between supply and demand. This hasn’t been the case here for a very long time. Minor volumes and isolated markets and products were generalised and said to be the whole market. This happens with good intentions, but in the end it is difficult to escape from the market realities and it is more a question of when than if. Certainly nobody was able to foresee the sanctions against Russia and the extended movements in the currency markets, but outside influences have always to be considered as an additional factor too.
Would the market have collapsed in 2008 without the Lehman crisis? Most likely yes, because the fundamentals were similar in summer 2008 to what they are in 2015, but the extent of the slide was dictated by conditions in the global financial markets at that time. Fortunately in 2015 the situation in the financial markets is far away from this.
From the perspective of the leather business we are not facing anything special. Prices and demand have always been and still are cyclical. After a period of excitement and expansion comes a period of adjustment and retreat. For various reasons prices have been reacting with a time lag to the declining leather demand, but with the end of the current leather season it was obvious for everyone that adjustments have to be made to revitalise the consumption and demand for leather as a material.
As prices overshoot on the upside in periods of strong demand, they tend to overreact on the downside too. However, nobody knows where the territory of overreaction begins. Many are claiming that the correction has already taken place. Well, if one looks at the present price levels and the historical ranges, in combination with currency correlations, we are still on the high side of the long-term price charts and the question is if the contraction of leather demand in shoe and leathergoods can be quickly compensated for by expansion in other areas, namely automotive. Long-term possibly yes, short-term the demand can and will not fluctuate by enough to change the present supply and demand balance. However, this time the markets are under better control so far and the retreat is relatively orderly, although the currency changes have created pretty large tensions between origins.
Business this week had been pretty subdued. Just a few supply gaps had to be filled in Europe and some tanners who are working regularly in Asia were willing to buy some hides. In Europe the interest was mainly for heavy hides, while from Asia the focus was more on dairy cows and low grades. The recent adjustment in US steer prices has closed the price gap by quite a bit and European bulls and steers are no longer so attractive in price that tanners are chasing these hide types. Prices were about steady overall, if we leave out some of the very aggressive bids, which we have not even countered. There is a bit of a worry because of rumours about cheap sales of dairy cows out of Europe, which are not yet confirmed and might have a story behind them.
The kill: The kill remains low and the rise in temperatures will not support beef consumption. We are now entering the low season in combination with falling weights.
What do we expect: So far we have been quite untouched by the market adjustments due to the shelter we received from the currency market. This, in combination with adjustments overseas, is beginning to fade now and the advantage is beginning to erode. It seems at this stage that we are not yet in immediate danger, but it has to be watched. Our main concern remains timely shipment due to constant problems with letters of credit openings, which is not indicative of a great need for raw materials and may indicate a shortage of financial resources. So, we have to assume that the general pressure on the market will persist.
| Type | Weight range | Avg. green weight | Salted weight | Avg. weight salted | Price per kg green weight | Trend |
| Ox/heifers | 15/24,5 kg | 22,0/23,5 kg | 13/22 kg | 20/21 kg | € 2,35 |
Soft |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 2,10 |
Soft |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 2,35 |
Weaker |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 2.05 |
Weaker | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 1,90 |
Soft | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 2,25 |
Weaker |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 2,20 |
Soft |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 2,05 |
Soft |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 1,80 |
Soft |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 1,80 |
Soft |
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