German Perspective - 09.10.18
09/10/2018
China and many parts of Asia were on holiday and, in the case of Germany, we also had a holiday on the Wednesday (for German Unity Day) and this paralysed almost all activity and complicated matters as far as daily administration and operations were concerned.
Once upon a time, when the Chinese industry was still on the rise, people rarely took a real holiday; only short interruptions were felt. There always somebody replying to mails, there was a quick response and in most cases communication was even actively triggered from that part of the world.
This year, you were lucky to receive a notice saying that, unfortunately, the person you were trying to reach was on holiday and that offices and banks were closed. There is nothing wrong with that, but one can see and feel from this how much the situation in China has changed. A lot of the spirit in the leather industry has vanished since it became much less easy to make a profit.
Business activity was consequently very slow last week and could not be compensated for by the remaining markets. Depending on the location and the types of hides on offer, between 50% and 80% of production can be shifted to regular clients, who mostly have steady order books and need regular supply.
What to do with the remaining hides is a constantly rising problem and, so far, it is less a question of price than an issue of demand for leather. Several suppliers claim that they are seeing no demand for low-grade hides. They now consider the cost too high to make dealing with these hides worthwhile. This might be the big change in the market.
In history extremely cheap prices were just considered a chance to buy. It was sometimes not clear when the market would turn but there was also never a doubt that it would turn and so it was merely a question of financial resources, warehouse space and patience.
It is becoming obvious now that, week by week, more players are losing faith in the old strategy. For them, it is a question of how to exit the vicious market circle without too much damage. Whether raw hide suppliers or wet blue and wet white traders, it is getting difficult to generate 100% returns on 70% sales. There are still a few left who believe in the idea that this is the chance to gain market share and to reduce competition, but that might only work for the packer companies themselves, and that will do nothing to increase demand for finished leather, which is all that matters.
Such a situation, in which raw material supply has constantly exceeded leather demand, has never happened before. Temporarily yes, but in such a structural way, never.
Trading and sales this week were very slow; most contacts want to know the new abattoir prices first. Specialties and niches, as well as top quality, find their buyers every week, but the bread-and-butter business is inexistent. Prices in the sales mix this week did not change much.
The kill: The kill continues to rise little by little. This week the numbers were curtailed by the holiday on Wednesday and by the nice and warm weather. Most reports see still good supply of live cattle meeting slow demand for better cuts. In the market logic, we should have to expect still a sharp jump in slaughter when the nights grow cold and the days wet.
What we expect: We still fail to see what could change the market. One should not forget that what is sold now will only arrive in China in mid-December. This cycle of production will end in April and that means that, at least for cows tanners in China, there is a need only to cover three or four months’ worth of production. This coincides with the large slaughter ahead of us in Europe. From our perspective, it is not a promising outlook. Let us hope that tanners have run their inventories too low and need to rush things along now.
| Type | Weight range | Avg. green weight | Salted weight | Avg. weight salted | Price per kg green weight | Trend |
| Ox/heifers | 15/24,5 kg | 22,0/23,5 kg | 13/22 kg | 20/21 kg | € 2,10 |
Stable |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 1,10 | Stable |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 0,90 |
Weak |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 0,70 |
Weakish | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 0,60 |
Weakish | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,60 |
Weak |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1.60 |
Stable |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.50 |
Stable |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 0,60 |
Weak |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 0,80 |
Steady |
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