German Perspective – 05.06.18
05/06/2018
Last week in Europe was more focused on politics than on the hide market. It was also shortened in many parts due to a holiday on Thursday. The Euro had been nosediving to levels close to 1.15 against the US dollar, but the market seems to believe the option of this new government in Italy is more attractive than waiting for new elections. The change of government in Spain, to another potentially threatening one for the EU, has almost been ignored.
As far as the hide business is concerned, nothing can change the main trends. Bulls are still readily absorbed by the quality tanners and can still hold their price levels steady. Small changes here and there can be neglected. The stable demand from the automotive industry remains, somewhat surprising given current international trade politics and the struggles various premium brands are having to adjust their engines to current public standards.
All of this is just temporary and will certainly not influence overall car sales. More car factories are planned and will be built, and more cars will be sold. As long as the consumer still considers leather to be an attractive material for the interior, nothing will stop the automotive leather industry, except perhaps the standard enemies like trade wars, a general economic crisis, the rising cost of living or interest rates.
The Shoe and Leather Guangzhou trade fair took place at the end of last week and the little news one we have got from it so far indicates that the situation is the same in China, with only the premium, niche and luxury leathers still finding good demand. Meanwhile, the standard shoe industry is further shifting to alternative materials. In any case, Chinese brands are starting to attract more consumer attention and no longer leave the market to the Western brands. This could be good news for premium origins, less so for the ‘bread and butter’ qualities.
In the meantime, many origins continue to paint a picture that is more rosy than the reality. Quality sells and commodity materials, which had been mainly shipped to Asia, do not. Sales of cows, heifers and low grades are tough, only possible to the few remaining programme buyers. This is not enough to absorb production and so there is rising pressure on finished leather prices.
Lower prices are not the solution. There were low bids for cows last week, around $3-5 below the levels one currently has to pay at the abattoir. Is it wise to take them? From the market perspective it might be, but are the buyers serious and will the clients still take the hides if the leather orders don’t arrive or if the market continues to decline?
We have decided to pass because the buyers were not the ones you want to have in a difficult market. In markets like this, it is better not to look for trouble. Prices for the week were steady for bulls but ‘your choice’ for the rest.
The kill: The weather was once again very hot, which is not good for the kill. A holiday in many parts of the country on Thursday did not help either. Weights are in sharp decline. We have the low season in front of us and nothing will change this.
What we expect: Slowly but surely the final shoot-out is approaching. No leather orders and no new business means we should expect further shut-downs of tanneries in China. At the moment, it is difficult to see what could avoid this. For the moment it is more important to bring the buying prices at the slaughterhouse closer to the market realities of weight and price. These market realities cannot be ignored forever.
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