Market Report 05.01.2024

What happened this week

Firstly, we would like to wish all our friends and readers a healthy, happy and, above all, peaceful New Year! Who would have thought not so long ago that the desire for peace and security would slowly begin to supersede other desires. The year began as one might have expected. In Europe, the majority of the leather industry was still on holiday, while in Asia, on the one hand, people were observing the market and, on the other, of course, realising that they would ultimately also be affected by the problems in logistics. In addition to the surcharges that the shipping companies are currently demanding, the issue of extended voyage times for ships is slowly beginning to gain in importance. On the raw material side, delays of 14-30 days at the leather factories in Asia can probably still be compensated for, but on the finished product side, the problems are slowly starting to develop, as many goods will probably not arrive in Europe or the USA on time. Of course, it is not yet possible to know exactly how long this will take, as the delays are not only due to the longer travelling time of the ships, but also to the handling in the ports and possibly also to the delays in domestic transport. We already know all this from the time of the pandemic, but of course that doesn’t make it any better and the extent will of course only become clear in the coming weeks when it is actually clear to what extent international shipping will be affected. In business terms, the first week of the year has of course not yet brought any major new insights. As is so often the case, many people hold many different views. In the leather industry, too, these range from very positive to disastrous. Here too, as is so often the case, the truth probably lies in the middle. However, we have the impression that many market participants in Europe may be ignoring a large part of the problems we are talking about here. Whether consumer restraint in Europe can actually be offset by growth and rising sales overseas remains very doubtful, to say the least. In any case, the cost issue is an extreme burden for the entire supply chain within Europe and it remains unclear how this will be resolved in the foreseeable future. The middle and higher price segment, which is mainly covered by production in Europe, is the most difficult sector at the moment. Some of our colleagues are characterised by optimism, especially for the more expensive and heavier goods. We may speculate about the arguments and intentions behind this, but the hard facts do not really provide a convincing explanation at the moment. Sales this week were weak in terms of volume. This was mainly due to the fact that customers are currently unwilling to pay the price increases triggered by the higher freight costs. A number of sales to China would have been possible under the same conditions as before Christmas, but price increases to compensate for the increased freight costs could not be implemented. In this respect, the negotiations were ultimately unsuccessful if the old prices and the associated reduced revenues were not accepted.

The kill

Like every year, 2024 got off to a relatively slow start for the meat industry. Monday was still a public holiday and it always takes some time for a certain normality to return between production and consumption. The next few weeks will show how meat production and consumption will continue. The weather conditions are expected to be relatively cold and this normally leads to a slight increase in beef consumption.

What do we expect

Next week, we will probably be able to gain a little more insight into the development of demand in the coming weeks. It is rumoured that the automotive industry is unlikely to increase its orders and that there will be no short-term restocking. We do not know to what extent they may also be dealing with the present global logistics problems, which could possibly also affect the production of vehicles. The wintry weather will hopefully continue to reduce stocks in shoe retail further. After the long period of rain, it is now getting much colder and as we are only at the beginning of January, this will probably still early enough to trigger additional demand for winter boots. There are now some very interesting consumer goods fairs coming up, especially the furniture fair in Cologne, which will probably give us a better idea of how demand will develop over the year as a whole. It will be particularly important to see whether, in addition to the question of whether the furniture market as a whole can recover, a recovery in the use of leather as a material can also be expected. In any case, the general consumer mood for furniture in Central Europe is still rather subdued. We do not yet see any real momentum in the market that could significantly change prices in the short term.