Market Report 17.11.2023

What happened this week

There is not much to report on the market this week either. Fundamental facts have not changed for months. If the facts do not change, then it is a popular variant to deal with the presentation of the interpretation of the facts. Playing with the presentation to influence public opinion is certainly not an invention of the animal by-products sector. The process has merely been adapted in our sector and explains also why the conclusions of many reports (including ours) over the past year had come to quite different conclusions. So, the facts remain unchanged, that the global supply of raw material is not covered by the total demand for finished products made from leather. These are the fundamentals that we have all been grappling with for some time now. The individual decisions that have been or will be made, depending on the position in the chain and the types of hides, may have an impact in the short term, but will not change the real situation in the long term. Many suppliers had decided to limit their offers in the hope that this would stabilise prices and then open up positive sales opportunities again when demand improved. However, this strategy has not proved particularly successful to date. This is particularly noticeable for those who have ‘temporarily stored’ their goods as semi-finished products. Today, the production costs for this type of manufacturing are almost never reflected in market prices. This is not particularly difficult to understand, because with reduced demand there is only no really convincing reason to fall back on a semi-finished product instead of using one’s own capacities. And as a result the prices for these wetblue and crust hides are suffering almost everywhere in the world and many players who have the alternative have now decided to reduce their production as much as they can. Very little has changed for us this week either. Sales of female hides to Asia are still possible, even if revenues in euros are now starting to decline. On the one hand, selling prices are falling slightly, but in combination with the weaker US dollar, this is now having a noticeable impact on net returns. In our view, the market for male goods remains the problem. On the one hand, suppliers are doing everything they can to avoid major price markdowns, but in our opinion this is leading to rising inventories and not necessarily to higher sales. Of course, this situation comes at an inopportune time, because unsurprisingly, kills of males increase at this time of year and there is also the interruption of production due to the Christmas holidays. The basic problem of a lack of demand, particularly in the traditional markets in Europe, cannot be solved by price alone at the moment. If we really wanted to achieve a stable flow of males again, we would have to gain additional and new market shares overseas, and that would certainly only be possible with considerable price reductions. The good news is that this remains the ultimate possibility, because in terms of quality we have the opportunity to displace other origins. As a result, this week saw a slight fall in prices for female produce and those who still had to make deals in Europe for the rest of the year also had to deal with lower prices for male production. However, we do not believe that everyone was able to sell the numbers that they would probably have liked to sell for the next few weeks.

The kill

The kills are slowly but steadily increasing. Temperatures are dropping, but we are not yet in a range that is causing farmers to quickly part with cattle. The availability and cost of feed will certainly become more important in the coming months and it remains a very exciting topic how the balance between available animals and the demand for meat will be managed by the meat industry in the coming months.

What do we expect

We don’t really know where market activity will come from in the coming weeks. Actually, only a positive market assessment by Asian customers for the period after the Chinese New Year can have a positive effect on the market. However, there are no really convincing arguments for this. In the case of male hides, where the European sales market dominates, it looks as if the tanners have now covered and finalised their planning and requirements, at least until the Christmas holidays. Higher quantities and unsold goods will therefore probably not be able to find a home so easily in the short term. Of course, all options are still open for the time after that and the beginning of 2024, but as the fundamental parameters appear unlikely to change in the short term, further pressure on sales and prices must be expected. The enthusiasm of tanners to speculatively take on more inventory is still very limited, at least at the moment.