US Perspective - 2.7.19
02/07/2019
www.themaxfieldreport.com
Members of the big packer trade say interest at the start of the week was somewhat surprising, as there were several reports of buyers willing to book product at full asking prices before other buyers had an opportunity to see offers.
By the middle of the week interest had slowed considerably and packers encountered a considerable amount of resistance to duplicate their efforts later in the week.
Overall, it is highly unlikely we saw as many hides exchanging hands this week as last week, although we were hearing reports that one of the packers was telling anyone who would listen that they enjoyed a decent week of trading.
It is worth noting that a couple of the packers did not even bother to share offers with traders this week, so we will likely see a smaller sales number on next week’s Export Sales Report.
As to trading levels, there were reports early in the week of several packers able to achieve trading levels that were roughly a dollar higher than last week, and if packers would have been willing to consider selling at last week’s levels they probably would have sold more.
In Asia, packers started the week with mixed offer lists, as some were reported to have added a couple of popular selections to their lists, while others had fewer selections for sale.
A common theme is that packers were seeking no worse, if not incrementally higher, trading levels and were insisting the bottom of the market had been “put in”, supported by the fact that recent trading levels were a couple of dollars higher than their lows for the year seen in May.
Several sources have shared this week that a number of larger tanners in Asia appear as if they are “comfortable” with recent trading levels, as they are of the opinion this will assist them in negotiating new leather orders. However, many small to medium-sized tanners do not share this opinion. This group of tanners claim that large tanners are the ones who are supporting the market and once their “buying spree” has passed, prices will return to levels seen last month. They say there is simply not enough leather demand to support all of the hides being produced globally.
Firmer to slightly higher asking prices slowed bids this week, as many tanners were struggling to come to grips with the aspect of paying more money for hides, especially considering that sales over the course of the 2Q have not exceeded the harvest.
Elsewhere, reports from the cowhide trade claim that there was a fair number of bids this week with most buyers looking to move prices lower. However, producers “dug in their heels” and trading levels appear unchanged.
In other news, we have heard some “rumblings” that some Chinese sofa plants have shut down for a few days, due to leather prices reaching such depressed levels it was deemed unworkable. This resulted in no choice but to close temporarily, as opposed to flooding the market with additional product.
As it pertains automotive leather, the assessment of most pundits is that leather orders continue to fall short of levels of a year ago, accompanied by claims of business being down anywhere from 25% to as much as 50% depending on the tanners and which automaker they have aligned themselves with.
In the meantime, we have heard reports of several larger players who have begun experimenting with producing microfiber PU leather in order to be more competitive in this business and fill some of their open capacity.
With regards to shoe / handbag business, some of the larger, well-known tanners report their leather orders are running close to levels of a year ago; however, it is widely believed that this is a result of acquiring market share from their competition.
Most other tanners complain about leather orders falling short of levels of a year ago, and most say the prospects for the quarter do not look promising.
July is likely to be another difficult month, although many tanners have guarded optimism that leather prices have reached such low levels that many of the brands will find leather more attractive and demand exhibits some signs of improving.
With regards to sales this week, we were able to round up a modest number, with trading on BBS at $32 and multiple sales on BRS, with regular weights selling at $22, mid-range at $26 and Super-Jumbos at $28. Other trading is calling HNS $35, while the only other trading is a couple of sales on heavier weight HTS, with sales on mid-range at $27 and sales on Super-Jumbos at $29.
In the cowhide trade, buyers attempted to bid prices lower, but most producers were reluctant to discount their hides lower than their last traded levels. Buyers opted to improve their ideas and producers were able to hold trading levels steady.
As to the number of hides exchanging hands this week, opinions are mixed, as we have spoken with some producers who say they had a decent week of sales, while others were not as fortunate but were grateful to hold prices steady.
Next week will be a holiday-shortened week of harvest (for the record, we saw 565,000 animals reaped last year and, considering the profitability of packers, we should see a number closer to 585,000 head next week).
We will also start to see members of the European trade start departing for their annual holidays. What is different from previous years is that it is widely speculated that there are a number of unsold hides sitting in warehouses in Europe and it will be interesting to see how those selling European hides handle the next 30-40 days.
As to offer lists next week, we suspect that there may be a bit of “smoke and mirrors” being used by some packers and it will be interesting to see how committed packers are to achieving their asking prices the next couple of weeks.
For now, prices of big packer hides are firm; however, we have some serious concerns as to how much upside there is in this market, as we are not aware of any substantial changes in leather demand. Meanwhile, with packers registering margins near a couple of hundred dollars per head, we are fairly confident that after the holiday-shortened harvest next week, we will continue to see larger than normal numbers and best for producers to continue to sell into this market.
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