Extracts from TheSauerReport18 November 2009
Domestic hide prices in Italy have increased by 5 cents for ox/heifers and by 10 cents for cows. A leading domestic hide trader describes the Italian market stable and positive. Surely not all in the leather business in Italy will agree with that.
The German market perfectly shows the ongoing problems in Europe where abattoir prices are very high and sales to tanners next to impossible as a result. Buying competition between traders is a major reason for the sometimes ridiculous price increases at the abattoir and one trader goes so far as to say that the players are more busy trying to kill each other than trying to sell hides and make some money. One can only conclude the situation is very serious.
Prices and demand for top quality heavy hides remain good and some sales are taking place in spite of everything. Cows to the contrary continue to suffer.
In France cow hide prices increased further while ox and bulls remain around the same at already increased levels. Selling is very difficult. Leather prices are still fighting to get over the first wave of raw increases. Maybe half of those could be recovered. But with the other half still to be recovered and new increases loaded on top it becomes impossible to move forward.
A very interesting calculation made together with a European hide trader showed that at
the price an American exporter can sell a heavy native steer to China (US$61 delivered), the European has already spent that amount of money receiving a similar type/quality hide in his warehouse from the European abattoir. He then still has to add all handling costs, inland and ocean freight, commission, insurance and, should he want to make a profit, coming to an asking price at which he will find no buyer anywhere.
Of course the euro/dollar rate (1.46 - 1!!) plays a very negative role in this as well. Thus, if the European cannot sell their hides to Asia and finds no buyers in Europe (read Italy) because there are no orders, then what are they going to do?
The price levels at the abattoirs, which in many cases have easily doubled in recent times, mostly due to limited availabilities and strong competition, simply must come down if we want to return to normal trade conditions. But we are not there yet. We are not even close.
The other solution would be for finished leather prices to go up a lot and that is even less
likely to happen.
Another impression, from a Chinese operator: ‘Suppliers of raw materials, longing for the good chance of the Shanghai fair, tried very hard to get as much price increase as they could. Buyers realised the shortage of good materials and also tried to pay higher prices as long as they could manage their costing.
‘However, business was difficult to conclude mainly because the gap was far too big. Eventually some suppliers had to find a meeting point to suit the buyers if they were serious to sell.
‘On the other hand, finished leather prices are stable or can be increased a little bit.
‘September is traditionally a busy month especially in the domestic market. Normally there are many enquiries and business activities as the buyers have to replenish their inventories or to finish production before the long holidays like the christmas and Western New Year and then the Chinese Lunar New Year.
‘However, this year seems disappointing because factories have not got enough orders yet. Situation is pessimistic and unclear.’
In Australia, trying hard to keep hide prices at the latest levels, exporters are supported by continuous strong demand from Asia and the reductions in the kill which might decline further. However, in due course, Australia will not be able to avoid lower prices if the global trend decides to move down.
The Iranian financial and economic world has always been different and closed off from the rest of the world but now it is also starting to suffer from the world economic crisis.
The main reason for the increase in raw skin prices is the low kill and thus skin availability. It has little to do with international demand. However, what the Iranian tanners do share with their colleagues elsewhere in the world is the lack of cash to operate.
Most if not all are selling on delayed payment terms and, as is the case also in neighbouring Turkey, the money is just not coming back into the trade fast enough (and in some cases it does not come back at all!)
There is good demand for car leather but the car companies in Iran also have a cash flow problem and orders are not big enough for the tanners to produce the minimum volumes they need to run their tanneries efficiently. The same counts for the shoe factories in the country. There is hope, however, that with the start of the back to school season (which is now) at least the shoe business will improve.
The articles available for export at present are mainly pickled and wet-blue sheep.
The Shanghai fair had no influence on the industry in Iran. Only two tanners were participating.
The entire region of ex-Yugoslavia shows big price increases. Baby beef doubled since April but there are hide types which show advances even bigger than that (up to 2.5 times the March prices!).
Reasons are the reductions in slaughter of approximately 25% and a lot of speculation. Most traders expect further price increases during the month of September. Many of them keep a certain amount of hides in stock which they are not interested to sell now. Keeping hides back causes more demand from the local markets of course.
Another reason is that the big traders have started selling to the Far Eastern markets. In the months of April/May many hides and skins were sold there and they count on continuation of their new business at good prices and in big volume (but this remains to be seen).
A few days after the successful Shanghai fair and the explosion of hide prices over the last weeks during which many prices simply doubled, the trade seems to have arrived in some kind of a vacuum as one of my sources nicely said. Nobody really knows what is next. There is demand.
Prices at the abattoirs have reached levels which no tanner can pay unless he loves losing a fortune. Many who sold short have no idea how to cover their sales without sinking themselves, etc. Buyers of much cheaper contracts are wondering whether they will ever receive the goods they bought.
This market makes me think about a phrase by my favourite Irish writer who, when asked about the weather, answered: ‘There appears to be a temporary indecision with the barometric pressure not knowing whether to go up or down.’