The third week of the new year has already come to an end and we still cannot report that the year 2023 has really started. From our point of view, the first three weeks dragged on without any noteworthy activities or insights. Of course, this is largely due to the fact that we have a very early Chinese New Year this year, which means that the holiday break in Europe has merged almost seamlessly into the holiday lull in Asia. In addition, of course, there is the end of the restrictive pandemic policy in China, which came so quickly that the manufacturing industry and the people were not really prepared for it. What consequences this will have for the economy as well as for private consumption in China can only really be seen in the weeks after the Chinese New Year. In such a constellation, everyone actually constructs their own picture of the market as they would like things to develop. On the butchers side, they like to point to the lower number of slaughters and on the other hand to the new situation in China, which in simple combination means less supply and more demand results in rising prices. On the other hand, the leather industry has a completely different view of things and points to significantly increased production costs and at the same time lower demand in many areas, especially in the furniture industry, which they believe will lead to falling raw material prices. This actually puts the two antipodes relatively far apart. The situation is further aggravated by an extremely large difference between the prices officially published in some cases and, on the other hand, the deals actually concluded in many cases. All this leads to the fact

that the intersections of supply and demand as well as of prices with each other are very small at the moment. If one limits oneself to the few hard facts that are available at the moment, one comes to the conclusion that the total supply of cattle hides is clearly greater than the total demand at the moment. However, if one splits the different quality segments a bit, the situation shifts and the extreme oversupply is then regional and in the middle and lower quality grades. On the other hand, the tanners try to increase their business and their contribution margins by focusing more on the better and more expensive leathers, which then increases the demand for better hides overall, without there being a guaranteed prospect that there will actually be a higher demand for the hearing-priced leather ones. All in all, of course, this helps the European suppliers, and puts more and more pressure on other provenances. In the case of the poorer grades in Europe, the demand for raw material for collagen production is now playing a significant role in the market for the bottom quality range and the calculation of split returns. Where the journey will ultimately go can only really be seen in mid-February, when all participants are again present on the market and make their final decisions regarding demand and production for the second quarter. This week, sales were again rather sporadic. This is not yet a problem, as on the one hand the kill  remains low and thus there is no major selling pressure. However, this also leads to an attempt to prepare the market for the next negotiations. What could be sold this week was again in a very narrow range around the prices that have been valid since December.

The kill

As already mentioned, the kill remains constant at the low level at the moment. The meat business is just not good enough and therefore we would estimate that we are at about 70-80% of what one would expect at the moment. Nothing seems to be able to change this situation soon.

What do we expect

We are now slowly approaching the next price negotiations. Whether these will bring a reflection of the actual market situation seems doubtful at the moment. It remains to be seen whether the sales prices can be reconciled with the sharp fall in the US dollar and the fairly low price level overseas. The production of hides will probably not increase significantly in the next few weeks and then it will become clear how urgently and how much raw material the leather industry actually wants to purchase locally and provide for its production. From the leather demand side one really cannot see any stimulus at the moment. In a few weeks we will know which market force was able to prevail in the end.