Market Report 26.04.2024

What happened this week

The market is becoming increasingly tangled up between the realities and fantasies that have been built up in many areas over the past few months. It remains a recurring misconception that the demand for raw materials is directly related to the actual leather orders. This has never been the case and is not the case today. While production capacity utilisation is very important in Europe and delivery times are relatively short, the market in Asia, and particularly in China, is not only characterised by longer delivery times, but also by a still very pronounced speculative spirit. Even if there are no reliable statistics and one is actually almost entirely dependent on private information, one could not deny the impression that the demand for raw materials in many areas in recent months was not always covered by the leather orders that actually existed. This probably applies in particular to the market in northern China, which still plays a very important role for cowhides and in the trade in semi-finished goods in China. Due to many parameters, such as price, the general herd instinct, the consequences from the split returns and, last but not least, of course, the hope of better demand for leather, business remained steady with prices tending to rise slowly until from last summer to the end of the first quarter. As is so often the case in spring, this then very often comes to an abrupt halt in the second quarter. This is also the case this year. As a result, the market is always in a phase of paralysis. Nobody has any real interest in prices officially falling significantly, as this would not only result in falling revenues for sellers, but would also affect leather prices and ultimately, of course, the valuation of the stocks that have been built up over the months. This time, too, it will be decisive how the demand for leather will develop in the coming months and the time of year does not necessarily play into the hands of the various players. At a time when facts are relatively scarce, opinions once again play a dominating role. This week’s trading was once again characterised by regular and recurring sales. Only isolated bids emerged from Asia and these were orientated towards what we also hear from other markets. The majority of customers are trying to test the sales pressure of the sellers with low bids and have had very limited success so far. More serious customers bought very selectively in very small quantities and then had to accept small volumes and little changed prices in the end. However, the volumes were not really representative of normal market activity. All in all, it was a week that did not really provide a convincing positive imprint of the market situation.

The kill

The weather remained cold this week and overall kills were higher than expected. Many had already announced a significant reduction in kills for this year, but the statistics for the first three months point in a different direction. Overall, cattle kill in the first quarter was higher than in previous years, which should come as no surprise given the cattle counts of last November. Next week we have a public holiday on Wednesday, which will certainly have a significant negative impact on overall volumes.

What do we expect

We are sticking to our rather cautious and moderately pessimistic assessment of the market and its development. Neither the time of year nor the demand for leather can seriously give the impression that demand and prices could develop significantly positively in the coming weeks and months. There is simply no change in the fact that in the end it is the overall demand for leather that determines whether the raw material can be absorbed, processed and successfully sold. If this is not the case, speculation or, to a lesser extent, a certain manipulation of the data can cause market changes in the short term, but in the long term nothing can be done to change the balance between supply and demand. Only an improvement in the demand for leather and an accompanying increase in leather prices could allow the raw materials market to regain a new and firmer long-term trend, but this does not look likely in the near future.