| What happened this week: The main event of the week
was the sliding USD. What was helping exports and business until some
weeks ago has now truned again against the exporters and when we
believed, that Germany hides were already overvalued for a while than
they are definitely today. For the international standard products such
as dairy cows, heifers and bulls up to 40 kg we consider the prices
today to be at least 10 to in some cases as much as 15 % away from the
market levels. This has nothing to do with the demand. Except
upholstery we see most anneries still working full and in particular
the hype in the automotive industry and the steep fall of the EURO
value until mid June had offered many the impression, that the prices
for German hides had found one direction since 2009 and this would be
an never ending story. Apart from a pretty shortsighted market view of
a number of players hardly anyone is really making a fair value
analysis and the deal of the day camouflages for them the real
situation and the question how the market is going to move.
Unfortunately the German market suffers also from political moves at
the abattoirs and this has also the effect, that players are ignoring
the market facts. It is far more important to get hides at this moment
rather than how much they cost. Low kills and the news about the
fantastic export business of the German car industry made and make
people still believe, that this is just a limited summer pause and not
a break of the trend. We pretty much doubt that, because it would
consequently mean, that alternative origins would need to rise by the
equivalent valuation gap and this means 10-15 %. With the stiff
resistance we see all over to break the magic marks such as USD 80 |
for
US steers hasnt been succesful so far. Talking to many tanners we get
the same story told for a number of times. Shoe, leathergoods and
automotive tanners are not complaining about orders and production
levels, but the vast majorty summarizes it pretty simply: More
production, creates more losses! For upholstery tanners the situation
seems to be different in that respect, that they do not have the choice
if the could or would possible prodcue less. For them the hides are too
expensive and the orders not enough. The results are in any case the
same and the question is just for how long and how much of the monetary
reserves possibly built in 2009 one is willing and in the position to
burn to safeguard the business now. Fundamentally another proof, that
larger profits in the leather pipeline are rather borrowed than made.
Being more or less midway of the year 2010 and having reached raw
material price levesl which are reasonably high the industry has become
pretty cautious about the next six months. While some belive, that
sufficient leather prices will be obtained and support the raw material
market are others more questioning the general global recovery and
believe that rather more that the boom of the recovery after the deep
crisis is now rolling out, demand is going to fade, the huge
governmental stimulus programs are either ending or loosing their
effects and consquently raw materil prices will rather adjust on the
downside to the consumer price realities. All of it is at the end the
question if somebody favours the inflation or deflation theory which
are discussed in the media and in between the economical scientists.
Both of them do not help anyone in the trade when he has to take short
term commercial decisions. Although trading and demand was light this
week and it needs weekly more effort to convince buyers to act
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the market as such is still
safeguarded by the low production and the pretty empty warehouses. So
far all hides which were produced were sold and neither were tanners
backing totoally away from the market nor were sellers brave enough to
hold on to stocks in the second quarter. This was keeping the first
stages of the pipeline pretty well cleaned up and suppliers are - from
the inventory position - pretty stressless into their summer vacations.
This does however, still not mean that the hides trade at sustainable
levels. Business during the week continued to be rather spotty. We find
it increasingly difficult to obtain asking levels and so we
surrendered were we found it advisable and accepted moderate
price concessions. There was no broadbased interest and so we had to
take some isolated decisions for reasonably limited volumes of
cows and bulls. The
kill: Well, we had a pretty long and cold winter and it
seems now, that we will be rewarded with a pretty hot and hopefully
long summer. Temperatures remain very high and outside animals are set
to suffer from sunburn this year. The kill is terrible and this Friday
a number of slaughterhouses have even decided not to open up. Holidays,
the hot weather and poor export business are causing buthcers a lot of
trouble too. The weather forecast remains good and the holidays just
started, so little can actually change things now. Supply will remain
pretty poor. What
do
we
expect: Well, as one can get from the above our enthusiasm
remains limited until we will see higher leather prices or competing
raw material origins showing a very strong price performance in the
near future. Currency will remain a strong factor, but from the demand
side we dont expect anything supportive for our market at the
moment. Since the supply is also low the lethargic market will most
likely accompany us for some more weeks.
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