Market Report 29.03.2024

What happened this week

Over the course of the week, almost everyone has probably returned from their trip to Hong Kong and Asia. As a result, the excitement and enthusiasm usually dies down again. Routine returns and the work that has been left behind initially determines the daily routine. This is also the case for us. The current week has been shortened by one day in many countries and the Easter holidays will serve as a chance for some people to relax a little and even take a short holiday if possible. In terms of business, the trade fair in Hong Kong has usually been a turning point in many respects in the past. Winter ends in the northern hemisphere, the days are longer again and somehow the focus shifts more towards private life and less towards business. In the past, this has usually led to a significant slowdown in momentum in the hide market. This time too, many market participants are entering the second quarter with correspondingly different intentions. Sellers are quick to paint a positive picture of the situation in the leather industry during this time and as a result of the trade fair, pointing to the usual decline in kills in the coming months and reflexively inferring a positive market outlook, which they then usually reduce to rising price expectations. The leather industry has a rather different perception of the situation at this time of year and is already dealing with declining orders, production interruptions due to public holidays and the company summer holidays already on the horizon. On the buyer side, this tends to indicate a subdued development and hopes for and expects stable, if not falling, raw material prices. In our view, this was also the case this week. The slaughter industry and its marketers are once again doing everything they can to fuel competition, spread uncertainty and fuel supply fears. This may make an impression on the trade, but hardly on the leather industry. There is no tanner who is under the impression that he cannot be adequately supplied. The majority of the leather industry is more concerned about receiving sufficient new orders and in Asia, where business is certainly much better, the focus is not only on orders but also on the price of leather. The attentive observer could already bring this back from Asia as information and realistically recognise that there is little room for price increases, at least until the next season and the new price negotiations. From this perspective, it makes little sense to conduct major price experiments at the moment and it would certainly be better to prioritise the security of sales over price experiments for the time being. Sales this week were again limited to Asia. Buyers again tried their luck with lower bids, which was just as unsuccessful as the attempt to push through higher asking prices. So, it was business as usual and the only thing worth noting is that the amount of males going to Asia continues to increase slowly but steadily.

The kill

The shortened weeks and Easter reduce the number of cattle kills. Food retailers are reporting a sharp decline in beef sales of traditional winter products and an early switch to barbecue products, which usually boost sales of pork and poultry here. Only in exports is there still good demand for certain cuts. This trend is likely to remain relatively unchanged over the next few weeks, and a seasonal decline in the cattle kill is a realistic scenario.

What do we expect

In the next few weeks, the new negotiations on the main prices at the abattoirs will take place again. There are many indications that the different interests and views of many market participants will once again make these negotiations considerably more difficult. The market situation for the leather industry has not changed in any way, at least in our view. In Asia, leather price targets dominate and in Europe, tanners will have to survive the next few months and possibly the entire summer with significantly lower capacity utilisation. As we know, this is only possible with improved margins if you are not prepared to lose customers at short notice. At the moment, everyone in the chain is pointing to their own problems, some of which are very serious, and there is very little room for more far-reaching strategic considerations. In any case, we are bracing ourselves for weeks of very tough negotiations on both sides and hope that common sense will prevail after all. Everyone should however remember the old saying: A sale is only a sale when the money is in the account.