German Perspective - 14.7.15
14/07/2015
Unfortunately, markets never adjust in a controlled way. For those tanners who are disposing of a reasonable order book - there are not many - the price correction of between 10% and 30% is allowing them to produce profitably again.
However, new leather prices and orders will have to be negotiated soon for the next season and nobody knows where the price will go.
With the summer holidays ahead of us and the low season in Asia, nobody wants to act.
However, despite the fact that most people think leather business and production has come to an end, it is not the case. Leather production is down for various reasons and we have the holiday season in front of us, where production stops for almost an entire month, in the West, at least.
This is offering tanners the possibility to reduce raw material stocks and to use all the expensive hides up which had been bought until a few weeks ago. With the market situation as it is, either tanners have so much inventory and so little cash that they do not even need to think about new raw material, or they feel so comfortable with the situation that they can wait until the last moment with the conviction that hides will be cheaper if they wait.
This is history repeating itself. The biggest problem is figuring out how much leather demand we have destroyed for the next seasons with the price exaggerations in the past 18 months.
Successful tanners will benefit from the situation and will leave the cycle even stronger than they had been. This is also good for those supplying the material to these tanners.
The main challenge is reading how the leather demand will develop. This is mainly important for the commodity leathers which have lost so much market share to alternative materials. It is unclear if and how quickly leather can regain some or all of the consumption that has been lost.
There is no question that leather business is down, but leather is still being produced and production facilities need to be filled. So, a flurry of interest would not be a surprise, but the big question is if that could break the trend. Trading this week was again extremely light and sales could only be achieved in the extra heavy end in Europe. We haven’t seen anything worth talking about in Asia.
The kill: The kill remains exceptionally low and with the school holidays beginning it is likely to remain low in our region for another eight to 10 weeks. The projections for the rest of the year are extremely mixed.
What we expect: The landslide is still in full swing although most people have understood that it is useless to talk about prices when there is no trade. Sellers feel there is no point adjusting prices and buyers are either not opening their mouths or bidding low, afraid of overpaying. So, this means no real market reference and the situation that no trade equals no price will go on for another week or more.
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