Market Report 01.09.2023

What happened this week

An eventful week is coming to an end. We cannot judge how the week went for those who did not make the trip to Shanghai. However, for those who did make the trip despite all the misgivings and low expectations, you will hardly find anyone who will have felt it was useless to have invested the time and expense. We think that there will be a fairly uniform opinion about the fair and about the market in China. There are two completely different markets and therefore two completely different situations. The driving force behind both is a) the price and b) the leather sector in which one is moving. Let’s start with the one that is difficult if not really bad. The business for shoe upper leather in China remains bad and the order situation for the tanneries absolutely unsatisfactory. This has a corresponding effect on male hides and those who went to the fair with hopes will probably fly home disappointed in every respect. The situation with cowhides is completely different. Many tanners from northern China also came to Shanghai to attend the conference of the Chinese Tanners’ Association. As is so often the case, they used this as an opportunity to visit the fair and meet suppliers on the first day. In the first hour on, these tanners tried to buy cows, and not only in Europe, but also in the USA. At first, of course, with bids well below the market, they realised that the suppliers had noticed the situation very quickly and were therefore not prepared to make major concessions. This situation continued until the end of the fair and as long as one stayed below the magic limit of 30 US dollars for the standard types, it was possible to sell almost any quantity of cowhides without any problems. Even though there were some colleagues who claimed that they were able to push through even higher levels, we do not believe that this was possible, if at all, in larger quantities. At prices below USD 30, some demand has probably remained unsatisfied. The big question then, however, was whether there was any coverage at all for these quantities by the demand for finished leather. The buyers were mostly tanneries that only produce wetblue, have small stocks of raw material, and assume that for the local market the goods can then be resold to furniture leather tanners with a small margin. Although one should not always look for the hair in the soup, only the next few weeks will show whether this can actually be shown to be sustainable. One must be concerned, however, about the still considerable stocks of male wetblue hides in Europe and the USA. The trade fair in Shanghai also gave no indication that the situation in the leather industry sectors could improve sustainably enough to actually sell off these quantities in the short term. Another problem is the considerably cheaper tanning costs in China and Southeast Asia, which make reasonable prices for semi-finished products in-stock from Europe and the USA seem hardly possible without a significantly rising price level overall. Chinese customers describe the economic situation in China rather negatively and are also not very optimistic that this will change very quickly. The greatest hopes are pinned on stimulatory measures on the part of politicians, without it being really clear what short-term improvements this will really make possible.

The kill

The kill is still in holiday mode. Volumes are hardly changing. However, cattle prices have risen again somewhat – it now remains to be seen how production will develop from mid-September. However, we do not expect a real and strong increase before the end of October.

What do we expect

In our last forecast we were right about prices, but completely wrong about demand. Even if it is only for the female hides, we can say that the pressure is definitely off the market for the next few weeks. For the male product, one is just as smart today as before and an improvement of the situation is not recognisable. What motivates individual competitors and slaughter companies to announce higher prices for bullhides for September will remain their secret. Perhaps it would be relatively sensible to think about the long-term consequences and recognise the market realities. Otherwise, it will be very interesting to see whether tanners will try to cover the open orders for cow skins in the next few weeks or whether it is just one of the sometimes typical mass movements of the Shanghai fair, which is based more on emotion than on facts. We will know more for sure by the time of the fair in Milan.