US Perspective - 13.2.18
13/02/2018
www.themaxfieldreport.com
Most sources in the big packer trade say interest was disappointing last week. The few buyers willing to share their price ideas continued to target prices lower than the last reported trading levels and, with packers unwilling to negotiate prices and countering bids at full asking prices, this resulted in a limited number of hides sold.
We heard unconfirmed rumours from Asia accusing one of the packers and several of the traders of trying to counter bids at levels $0.50-$1.00 lower than their last reported trading levels. It is very likely there was more business not concluded than business booked this week.
Reports from Asia claim there were only a handful of tanners in the office towards the end of the week and with most tanners feeling hides are too expensive, there was not a lot of interest.
Most Chinese tanners have closed to observe Chinese New Year and most will not return to work until Feb 22/23. Some will close the entire month of February, citing a lack of orders, leaving most tanners with no sense of urgency to buy hides the past few weeks.
Elsewhere, there are unconfirmed rumours that one of the packers concluded some direct business with a couple of large tanners. According to reports, trading levels agreed are well below the market, with sources insisting sales price was only $2-$3 higher on a delivered basis than the last reported FOB levels for HTS / BRS.
Tanners claim automotive leather business remains decent. However, sources are quick to point out that the lion’s share of the improvement in demand requires tanners to cover their leather orders with lower grade material such as Brazilian wet blue, Australian hides and some lower grade selections of US and European hides.
In terms of furniture upholstery leather, business remains decent for most medium to large tanners. Many smaller sized tanners have closed for CNY, while the few still open this week appeared to be in “holiday mode”. It is unclear whether tanners are suffering from a lack of leather orders or pollution control. Regardless of problem, this is weighing heavily on demand for lower quality hides from Australia and the US.
Reports from members in the shoe-upper leather business claim most tanners have not yet seen any appreciable improvement in leather orders. That said, many of the brands have increased their orders in December and January; however, orders continue to fall well short of projections the brands had shared earlier.
There are more than ample supplies of cowhides for sale, leading to thoughts that buyers willing to consider voluminous type business will be able to negotiate prices, especially those willing to accept prompt shipment.
Although big packers convey a firm tone to the market, we are starting to see some cracks developing in the armour of the packers. This market is under pressure and producers are trying to trade as close to steady levels as possible on limited volumes.
Those selling hides caught a bit of a break this week as packers slowed their harvest intentions on Friday and Saturday, and this week’s total comes in at 591,000 head. With the exception of a holiday, this is the first time since the middle of April of last year we have seen harvest numbers fall below 600,000 head.
Looking ahead to next week, we expect another uneventful week of trading as all of Asia will be observing CNY (February 16). We expect the sold-forward positions of packers will be tested and would not be surprised if some of the shipping times on packers’ offers lists that had been advertising April shipment are not suddenly March shipment or even early March shipment.
Meanwhile, the Asia Pacific Leather Fair (APLF) in Hong Kong is only five weeks away, and if we look back to last year’s fair, we saw big packer hide prices lose 5.5% of their value, or roughly $4, on the first day of the show. This ignited a decline that lasted until September of last year, when we saw prices recover approximately 10% of their value over the course of the 4Q.
There are simply not enough hides being sold on a weekly basis and whether producers are willing to admit it or not, they are accruing unsold inventories of hides. Packers appear as if they are still able to ship at a reasonable rate; however, if they are not placing additional sales on the books it is only a matter of time until we see packers forced to sell or some huge pent-up demand from tanners. This much is for sure: something is going to have to give soon.
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