Market Report 22.12.2023

What happened this week

This week will probably have been the last really active and operational working week of 2023. In Europe at least, the leather industry is now closing for at least a week, but in many cases for several weeks more. This week was therefore characterised by administrative tasks and, of course, by sending good wishes for the upcoming Christmas and New Year. However, that is not to say that this week was very quiet and that we could already see the working year slowly coming to an end. The renewed problems in logistics are a particular focus of interest. The situation in and around the Red Sea is now being discussed. As everyone probably knows and has heard by now, attacks on cargo ships are increasing and many shipowners have therefore decided to reroute their ships and take the longer route around the Cape of Good Hope instead of through the Suez Canal. On the one hand, of course, this means a journey time that is extended by over ten days, but on the other hand it also means that sooner or later there will again be congestion outside the harbours and possibly also a lack of empty containers. To make matters particularly unpleasant, many shipping companies have now announced significant surcharges that will apply for the next few weeks or perhaps even months. At the moment, amounts ranging from USD 500 to USD 1500 are being quoted, which is of course completely exaggerated compared to the actual costs. This is simply a disguised increase in freight rates. The fact that completely different freight costs have been calculated for contracts that have already been concluded for weeks, which will now increase by some factor, is of course particularly problematic. One can only hope that the interests of the western world and Asia are absolutely identical here, because both sides definitely need functioning global trade and secure logistics. It remains to be seen whether this can be developed into a joint military action to protect shipping. In terms of business, the week was quiet but not entirely free of activity. In Europe, there were still individual deals for the first few weeks of the new year, with price discounts again having to be accepted for male goods in particular. For cowhides, everything is centred on the market in China and the picture here is the same as it has been for many weeks. At the beginning of the week, 2-3 US dollars less are offered and as the week progresses, more and more interested buyers drop out until one or two are left at the end, who are then prepared to accept unchanged prices for cows. The revenue situation is of course now changing considerably due to the increased freight costs, the lower USD and it remains to be seen which of the two sides will emerge from the new situation with less damage. At the moment, it does not look as if the buyers in Asia will be greatly impressed by the increased freight costs and the upcoming Christmas break will probably not allow for any major discussions or negotiations.

The kill

As always at this time of year, kills are slowly declining as the festive season approaches. Some are already stocking up for the coming week, but the longer interruption until Wednesday has reduced the quantities at the end of the week. Next week will also be significantly reduced with three possible production days and some butchers have even decided that they will not slaughter at all next week while some other plants remain active in the three production days.

What do we expect

Looking ahead to next week is relatively pointless. Like every year, there will probably be a scattering of interest from here and there to see if anyone still has an urgent need for sales during the Christmas break and would therefore be prepared to make significant price reductions. We think that this is relatively unlikely and that it is better to concentrate on the beginning of next year. The geopolitical situation will probably have the greatest influence on activities. We have the impression that most of the demand for the start of 2024 has already been covered in both Europe and Asia. In Asia, which is now heading towards their New Year, I certainly have to give some thought to the supply situation and whether we might be affected by delays in delivery. This may favour the Pacific route and possibly cause us difficulties. However, it all depends on what plans are made for leather requirements in the second quarter and that will determine activity at the beginning of next year. However, we are not holding out much hope for a significant improvement. So it’s time again to wish our business friends and readers a happy and peaceful Christmas and, to be on the safe side, best wishes for a healthy and, above all, peaceful New Year! Merry Christmas!