German Perspective - 2.6.15
What happened this week: Generally it was another quiet week. In particular, activity in China is far below what is considered normal. The news continues to be negative. Only the large industrial tanneries are running on normal production schedules. The others reflect a mixture of missing orders, expectations for a falling market, uncertainty about the tannery waste situation, the split market drama, financial problems and the low season, which keeps them very much on the sidelines as far as raw material purchases are concerned.
One has the impression that summer holidays have been taken in May. As much as all this is concerning we should not get overly scared. Due to the lead times in the global supply chain it is not unusual. In the normal times, i.e. when markets were not always rising, tanners in Asia continued to buy and to replenish in spring for September after the summer break. There was no market risk, so they felt confident buying.
The situation in 2015 is different. The Chinese have never been brave buyers in a falling market and one cannot expect them to take positions when business is difficult and they are spending time dealing with the authorities regarding waste and other controls.
Considering all these problems it is reasonable to complain about the timing. The Western World is slowly preparing for the summer holidays and orders remains uncertain.
What is remarkable are the whispers the automotive the business is not as bright as we have been used to. It varies from brand to brand and nobody is discussing in public yet, but except the very luxury end, total volumes don’t meet budgets and prices for the bulk productions are becoming increasingly under pressure. The second half of the year will tell us more.
Sales and trading this week were again below par. The export business was reasonably dull and there was just a short time window in the currency market to get a sufficient number of hides sold at acceptable prices. However, it seems that it is less a question of price rather than a question of need. The few who need to buy hides are paying close to market while others simply don’t buy. With the lower levels of sales volumes and kill, it is a sticky market in both directions.
The kill: The kill remains on the seasonal levels. We would not even call it very low, it is just what it is at this time of the year and one cannot really find any reason why this should change in June. When temperatures rise it might get another hit. Slaughter and hides weights continue to decline.
What we expect: The market is stuck in between low kill and low demand and this is pretty common at the beginning of the summer. The more heavier hides, the more stable the market is. For the rest it is increasingly difficult, because the volume of sales are missing. The market could digest this for some time, but it is unlikely that we will receive much support from the tanners for the foreseeable future.
