German Perspective – 30.07.19
30/07/2019
The fundamentals are better than ever. Raw material prices are low, interest rates are even lower, leather consumption has dropped and pipelines have been significantly reduced; if there is a time for a new start, then it is now. If we are looking for positives, then the recovery of sales in the US since mid-spring is seen by many as the first indication. The pessimists see it as a mixture of marketing plays by the sellers and a speculative run by buyers who couldn’t resist the low prices and special deals they were offered to take volume.
The biggest question mark is over what leather demand will be like in the new production season after the summer break. If leather demand does not pick up, and Chinese tanners feel their bet might not be the winner, sellers should not be certain that all their contracts will be honoured. It remains a deal of hope and not much more at this stage. It is also unlikely that we will know who the winner is until mid-September or October.
Whatever direction things go, one can be sure that there are still unpaid bills from the market decline. They will either get bigger or will be presented for payment, depending on how prices develop. For the moment, suppliers are trying to ride the wave and take advantage of the momentum.
In other parts of the world, including in Germany, the general market sentiment has not changed. There are still a great number of hides around and stocks are building up due to the holiday shutdown. The main takers of European hides had been the regional industry, which is now missing.
What is really happening is a cut back of production. All over the world, the number of hides being collected and prepared for the leather industry is declining. Prices that do not cover the cost of transportation and processing are being avoided wherever possible; this is what the leather industry has still not fully understood. The idea that hides will always get cheaper is as wrong as the idea the beef industry had some years ago that hide prices can always go higher.
At the moment, the buyers, mainly in China, are only looking for premium hides, which is understandable. The problem is that they don’t understand that they have to pay an adequate price for them and that this price is now calculated in a different way. It is no longer just about the value of that hide, but also the margin it can contribute to make up for the missing margins from the lower quality hides that clients don’t want.
The good news is that there are enough buyers around to spend the money, which confirms that their margins for the remaining leather business have increased too. This was reflected in last week’s hide sales. Good quality types sold at full asking levels after it became very clear that there was no need to negotiate any prices. The volume was certainly not big, but that is nothing unusual for this time of year.
The kill: The kill continues to be higher both in numbers and in weights, as one would expect considering the holidays and the weather. Weights have not dropped as much as they usually do in July. The forecast at the moment is still the same, but we must also recognise that the herd is shrinking.
What we expect: The market structure is beginning to change. The balance between supply and demand is adjusting and this is not being led by a rise of demand. Good and attractive leathers continue to be sold and margins are widening. The price adjustment between the types is not over yet. Less volume has to cover almost the same cost. The price trend will be stable this week.
| 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 | € 1,20 |
Stable |
| 25/29,5 kg | 27,5/28,5 kg | 22/27 kg | 25/26 kg | € 0,65 | Stable |
|
|
Dairy cows |
15/24,5 kg |
22,5/23,5 kg |
13/22 kg |
20/21 kg |
€ 0,65 |
Stable |
|
25/29,5 kg |
27,5/28,5 kg |
22/27 kg |
25/26 kg |
€ 0,50 |
Stable | |
|
30/+ kg |
33,5/35,5 kg |
27/+ kg |
29/31 kg |
€ 0,45 |
Stable | |
| Bulls | 25/29,5 kg | 27,5/28,5 kg | 22/ 27 kg | 25/26 kg | € 1,20 |
Pressure |
| 30/39,5 kg | 36,0/37,0 kg | 24/34 kg | 31/33 kg | € 1.20 |
Pressure |
|
| 40/+ kg | 45,0/48,0 kg | 34/+ kg | 38/40 kg | € 1.05 |
Pressure |
|
| Thirds | 15/+ kg | 25,0/27,5 kg | 13/+ kg | 24/26 kg | € 0,30 |
Weak |
| Thirds bulls | 30/+ kg | 38,0/40,0 kg | 24/+ kg | 33/36 kg | € 0,45 |
Weak |
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