GERMAN PERSPECTIVE—04.02.20
What happened this week: By the end of last week, we knew much more about the
Coronavirus, but we still don’t know what the real impacts will be. It continues to spread quickly and nobody knows how far this will go and how bad it will become. The virus is dangerous in itself and the decisions taken to prevent it spreading will also have a massive impact.
The government in China extended the holiday break for an extra week, but people are returning to work now. Global companies, airlines and others are restricting travel to China and have also closed most of their operations or asked staff to work from home.
Payments, movement of material, purchasing plans and so on will be hit seriously and will remind us how much the globalised world is connected and what it means when the network is interrupted. Until we know what steps the Chinese government will take next, we won’t know what the influence on the hide and skin market will be. If China now experiences a number of weeks of subdued production, we have to expect quite a few after-shocks for a while.
In the hide business, there has not been much impact so far because everyone had already factored in the holiday period in China. In Europe many players were expecting a firmer trend owing to stabilising leather production and lower slaughter. The more last week progressed, the more the enthusiasm faded and buyers who still had not confirmed their February programmes became increasingly cautious, resisting the higher asking prices that sellers had already taken as a given for new deals.
Suppliers are not willing to surrender yet and buyers are certainly not willing to run into anything blind, with the influence the virus might have on the market still unclear. In particular, tanners serving the automotive and luxury leathergoods markets will be nervous because of the great importance of the Chinese market in general and the Asian retail market in particular.
Trading last week was thin and light. There was no interest from Asia and just bits and pieces from Europe at the beginning of the week. We decided not to touch prices by much
and so sales were at unchanged or fractional upside adjustments.
The kill: The kill continues to run at the lower seasonal numbers. Until the end of February we don’t expect any real change or recovery. There are many reasons and they don’t need to be repeated all over again. Weights continue to be reasonably high.
What we expect: There is a conflict gaining momentum. The lower kill is causing supply issues in the regular delivery programmes in Europe, which is in direct conflict with the potential decline in hide and leather demand from Asia in the short term. However, hide demand in Europe could also fade when leather shipments to Asia get hit too. So no prediction is possible for now.
