German Perspective - 22.9.15
What happened this week: The market is in a state of confusion. The players are taking different positions and this is reflected in the fact that hides prices are bouncing all over the place. Until the All China Leather Exhibition in Shanghai there was a common understanding that hide prices were falling and this trend would continue for some time.
Some players in Europe have reported a flurry of interest for better quality hides and this made some believe that the time of falling prices might be over. Or, perhaps some had built a forward position that made them a bit more ambitious and confident in a turn. Others were happy if they could just find customers with a positive trading record to sell at further discounted levels.
This has led to a wider spread of prices. However, the world hasn’t changed much in the past weeks, which means tanners with orders still need to fill their drums.
The demand for low-quality hides remains lower than the offer and better-quality material has to prove it has not just been a short-term flurry of interest.
It is unlikely the market fundamentals have changed, just that the better-quality hides were more protected against the collapse.
Financial problems in China, lower leather prices and uncertainties in many regions are not paving the way for a turnaround in hide prices.
For the European suppliers, the euro has gained about 10% since the lows seen in early summer and this means we have become less competitive. As long as it is difficult to find any real increase in leather demand we should remain on high alert as far as the market is concerned. It would be positive for everyone if the prices stabilise and the best timing for this would be now - at the start of the new leather production season. It just has to be supported by better leather demand to absorb the existing stocks.
Sales and activity this week was barely satisfying. Some interest was seen from Asia at steady levels for cows and bulls, but with the weaker US dollar it was not the same as last week.
Letters of credit (L/Cs) are coming in with difficulties and many buyers are trying to change from L/C to deposits. Some may like it, we don’t. To ship hides that are not guaranteed with payments remains a high risk and even a 30% deposit means little when the cargo sits unpaid in a Chinese port.
In Europe, sales are more regular with less inventory and steady business in the medium and higher end. The numbers sold are enough for the moment, but would not be enough when the kill finally picks up.
The kill: The kill was a fraction higher this week, but the warm and rainy weather lets the grass grow and farmers are not yet rushing to sell cattle. When the cold nights begin, this will change quickly.
What we expect: We do not see a confirmed uptick in leather sales and we not feel comfortable with demand. A stable market would be best for everyone and, at least for the coming weeks, we have a good chance. The next critical juncture is for us the second half of October when orders and prices for 2015 and 2016 will be clear.
