What happened this week: The
trend is you friend, or the market feeds itself might be the best
desrcriptions of what we see in the present hide market. Too many EU
tanners had not replenished their stocks in time and waited until the
leather order arrived. When they got them already at the end of 2009
they did not see any margins with the eroded leather prices after the
crisis. So, they decided again to wait again in the expectation, that
the raw material market would take notice and react accordingly. The
end of the story we know today. Leather business turned out to be
better than the tanners admitted and expected, their stocks have been
and are inadequate for the market budgets of 2010 and this is pushing
them into the into the raw material market which had been already
decently emptied by the anti-cyclical buying of the Chinese producers.
What had started as a moderate trend in the second quarter of 2009 and
took a break in October has become a veritale bull market since
December. All the consequences are going with it. Prices are climbing
fast, sellers are surprised that the higher prices are not dampening
the demand and do actually not anymore know the real value of their
material. This goes that far, that some packers and processors are not
anymore willing to book prices for a normal time frame like one one
month, but are only willing to fix quantities for teh period while
prices have to be negotiated from week to week. A classical sign when
markets start to get out of control and the fair valuation of the
products is lost. This is neither new nor will this be the last time
happeing, but it was and is also the preparation for all the
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problems
related
to
such
market circumstances. For the moment and most likely
also for the near future we have, however to manage the situation and
this means fundamentally a material shortage and rapidly growing
problems with the profitability of leather production. If the
information one is receiving from the industry is true and correct,
than are price increases for finished leather hard to obtain, if any at
all insufficient and
in some cases leather buyers have even the guts to ask for
discounts. Tanners at the same had been so eagerly grabbing for
business around to fill their productions, that they are now in the
double misery. On one side in need of the business and production and
on the other side trapped in a raw material market which offers
insufficient supply and price levels which are loss making at
replenishment costs. At the end the tanners had little option. Nobody
wants to lóose a client now when the market pickes up and so is not
buying and producing not an option and at the moment tanners are
willing and forced to run full risk, that the present investment in
market and clients is going to be repaid eventually. Despite the fact,
that the market is presently in a rock solid situation and supply hanst
met demand for a while we still see more risk than chances eventtually.
Packer prices are going to overreact as usual as short positions,
demand and low stocks are always an explosive mixture for prices
- no matter if they are justified or not. For the by-product the last
drop will be squeezed form the market. When this is going to be is
anybodys guess. The next chance for a break in the market trend
might be the Chinese New Year. So far the <chinese havent shown any
signof fatigue to invest into raw hides and skins evonthough they are
not famous to
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a market which is climbing to
high and too fast. However, with them taking a break some of the
upward pressure would at least taken off. However, holiday mean nothing
to them when they actuall think it is better to remain in teh market.
So, the the coming period will tell us quite a bit. Trading was active
also this week. Interest was about from all over, but again mainly
dominated by European tanners, followed by isolated bidding and buying
from China. Towards the end of the week activity slowed down a bit, but
this means nothing wiht hardly any hides being available. Prices moved
in anticipation of higher levels at the abattoirs up with still nobody
actually know what the levels are going to be in February. The Kill: The kill was pretty
steady, but we saw a massive shift from males to females. The
percentage of bullhides was again on record low. what s causing also
the trouble with the fresh hide supplies. Weights are slowly starting
to reach the normal level for the season. Next weeks the kill should be
steady before falling back due to the carnival season. Lets just
hope that the weather is not going to cause further problems. What do we expect: The market is
certainly remaining firm. The question is rather how much courage the
sellers have as far as rices are concerned and how many tanners still
need to cover orders. It will take a few weeks to tranquilize this
market at the present stage and to create some kind of fear or caution
on side of the beef and processing industry. For the moment we still
see the main risk for the market in the financial consequences the
situation creates. The coming weeks will be determined by further
declining offer values, possibly suppliers not meeting their shipping
obligations and tanners working on options to solve their present
market problems.
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