German Perspective - 13.2.18
13/02/2018
The strongest impact is certainly related to China, where tanners were winding down for Chinese New Year. The good news was deposits and letters of credit for outstanding contracts were all swiftly arranged and the holidays were not taken as an excuse for delays.
This is at least a clear signal that stocks of those tanners cannot be too big and the material bought for production is definitely needed. This should not, however, be considered as the big market turnaround. Sales to China had been pretty subdued in the past months and at least in our case the hides sold were all premium grades which were not facing any problems anyway.
Premium hides are still selling pretty well. This makes it difficult to assess the market. There has never been 'one market' in the hides and skin industry, but the segmentation we have seen over the past two years is more extreme than ever before and the correlations do not work any more.
The rising number of certifications, specs and regulations limit the flexibility of the leather industry in an excessive way. More raw material “islands” are created, which is a contradiction considering the strength of the tanner used to be his flexibility and creativity.
Only a few small operators can preserve this - if they are permitted by their customers and the supply chain which follows down to retail. This is playing more and more into the hands of the big players on both sides of the table, which are by nature inflexible, and so they cultivate the situation to their benefit.
The funny aspect is that the big tanners have promoted this trend but are increasingly becoming the victims. Being under price pressure for finished leather with the usual time lag following raw material price descents, they cannot escape from the situation, because they have to observe too many restrictions to switch their raw material base. Exceptions aside.
Business this week was pretty much the same as the weeks before. Tanners in need of specific articles buy hand-to-mouth or renew their programmes. This keeps the market for quality hides and specialties in balance, with rising tensions. For the standard items the situation is more difficult. There is a global lack of demand and there are plenty of opinions about the demand of the leather industry for March/April, but none is convincing.
Sales this week had been isolated. The majority of interest was for quality males in Europe again. China, before closing, was sniffing around, but it was a simple 'no bargain, no deal' and buyers seem to leave quite relaxed for their holidays.
The volatility of the financial markets and the moderate recovery of the US dollar had almost no influence on the market. And so we go on like we have done since mid-December. A non-convincing steadiness.
The kill: The carnival days had the expected negative effect on the kill. Numbers were down this week and so they will also be next. Weights are heavy, which is a help for calculations. The kill will hopefully rise in two weeks’ time.
What we expect: Any activity next week would come as a surprise. This does not mean that one cannot be surprised, of course. However, the Chinese do not seem to be desperate to chase supplies and prefer to take a break. In Europe, one cannot expect anything other than the normal business routine. Prices will most likely continue to trade in their present range.
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