German Perspective - 20.10.15
20/10/2015
We are now in the full swing of the winter production season and it seems the volume of leather orders are significantly lower than they were a year ago.
However, for a European, the situation might feel worse than it actually is. Our prices are still quite high and reasonably stable since the sharp drop at the end of the summer. We believe that the next market trend is still well ahead of us. We thought we should be next to it by mid-October, but it might take a little while until the market balances emerge.
Demand seems to be stable, but could face a seasonal problem later. From mid-November, shipments to Asia will decline due the Chinese New Year holidays and business in Europe will slow down in December because of the Christmas break.
As of today, the order books are not good enough to shorten the holidays, quite the reverse - a number of Chinese tanners are already indicating that they might close well before the holidays and take a longer-than-usual break. At the same time we have to expect the largest kill of the year over the next eight to 10 weeks. So, what looks in good balance has a risk to become an issue sooner rather than later.
Sales for the week were slow or, to sound more positive, 'selective'. Almost all of the interest came from Asia for cows and a few heifers. The weaker dollar kept the upside options well under control and for those who do not remember, the euro has gained a decent 4% since mid-August and 8% since March.
In Europe all business is focused on the regular programmes. Prices were pretty much the same as the weeks before with prices for bulls moderately declining.
The kill: Although the weather is turning ugly has the kill has not yet gone up. The numbers are ok, but we are not seeing the rises one would expect at this time of the year. However, last year the bigger numbers only happened in November, so we might see the same this year. Weights are also well behind seasonal averages.
What we expect: It might not be obvious, but fundamentally, price pressure persists. So far it has not caused major corrections, but higher kills and some more quiet weeks could change the balance quickly and put the market at risk.
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