German Perspective - 18.7.15
What happened this week: The week was pretty turbulent. This was less a result of the hide market, but more to do with the general economy. The Chinese National Bank devalued the yuan three days on the run, at a total of 5% against the US dollar. This more confirmation that the Chinese government is not too happy about the performance of the economy.
The currencies of many emerging markets and commodity-exporting countries are weakening and there is a fear that this could become an increasing problem, particularly as the US is expected to raise interest rates.
For the hide business, this meant letters of credit (L/Cs) and payments in processing had to be renegotiated with banks, which were asking for higher yuan deposits for import L/Cs in US dollars.
Apart from the administration problems, tanners who mainly sell locally and do not export their leathers are now paying about 5% more than they initially thought. This wiped away the confidence that had been building over the past weeks.
Producers who re-export leather or leather products from China will feel much less of a hit, because they can recover the difference from the export sales, and for some it will even be beneficial, because Chinese products will become less expensive on the international markets.
With the slowing domestic consumption, Chinese companies are increasingly feeling the pinch of rising production costs on the international markets.
Apart from this, the general market was pretty quiet. A bit of interest was seen here and there at the beginning of the week and quick decisions were allowing sales, but more on the higher-quality and male side than for the medium and lower quality.
There were bids around for cows too, but they were quite low, although we understand several colleagues around Europe say they had better sales and cows still trading around the $60 level for the heavier categories.
Towards the end of the week, activity slowed in response to the increasing uncertainties in the financial markets.
Sellers began to dig their heels in, so as not to be too pressured to sell during the All China Leather Exhibition [August 31 to September 2] and we find it interesting how many people have decided not to travel to Shanghai.
The reasons are unclear, but some seem to have issues to deal with and don’t want to meet their clients face to face. Others might think the timing and general market conditions are not good and so the better option might be to stay at home.
The generally flurry of business seen in the last week faded towards the end of the week and with the general economic problems around the globe, all is open again.
Sales this week had been ok for summer, but we are still missing confidence and a clear picture about leather demand for the coming season.
Generally, it takes until the end of September until all the decisions are taken. Prices this week have been generally stable, but the weaker dollar has been reducing euro revenues again.
The kill: The peak holiday season is under way and in the coming weeks people will be returning home. Abattoirs are complaining about beef sales and so we do not expect any major uptick in production before September or maybe October.
What we expect: It seems some of the confidence of last week has faded again. Tanneries will always need hides, but the unclear picture about the economy makes it difficult to take clear positions and most are back to a more cautious mode. We hope for some pre-fair deals next week, so that discussion in Shanghai can focus on general issues and less on hide sales.
