Extracts from the SauerReport

1) Leather orders in China are there but show reduced demand from the upholstery and bag sectors, a somewhat better demand from the leather garment sector (sheep) and a consistent and good demand from the footwear sector. The car leather sector remains as always a special case, with good interest for very specific items
2) Tanners show ever more resistance to raw prices which do not allow them to work profitably
3) Meat packers do their utmost to stick to high prices. The meat business in general is not very good and thus producers/abattoirs try to get more profit out of their byproducts of which hides and skins are the most valuable
4) The raw market did not really change in a global way in Shanghai
5) The pressure from the buyers’ side may succeed in getting certain prices down to workable levels but not to big decreases. Small decreases at the source will be a hard fight and although the leather industry calls it inevitable we have not really seen it happen on a global basis
6) More interest for low cost origins and even for head pieces
On day two of the fair, an East African shipper reported that the even was full of activity for him. Demand for his cow hides is good while the East African goat and sheep market remains steady. But traders say they have big problems in finding offers and that shippers have increased prices a lot. After the fair we learned that sellers could indeed get better prices but not at all what they dreamed of.
An English hide trader called the fair well attended by the end of the first day. His stand was busy all day but it was all talk and no sales he said. UK hides prove hard to sell as prices are very high. But strange things are happening since there are Chinese tanners who claim to have received low offers and who bought.
A case is known of an English supplier who was offering 36kg+ ox hides at $6-7 below the list price. Others remarked that they wonder what quality he intends to ship against so little money? Or maybe he is just gambling on a much lower market? $6-7 is a lot however!
Chinese upholstery tanners are looking for cheaper material. They are looking again at Venezuelan, Columbian and African and similar qualities again to compare with Brazilian hides. The tanners are still waiting for the best moment to buy and in the meantime hope Brazil will lower its prices (but they have not done so during the last 4 or 5 months - says Sauer).
Car sales in the US came down a lot in August. Almost all the big names reported big reductions in sales. General Motors 25%, Ford 11%, Nissan 27%, Toyota 34%, Honda 33%. Only Chrysler/Fiat showed an increase, 7%.
My Brazilian source at the fair said the second day of the fair was like the first day. He added that the fair looks more professional but the Brazilian tanneries still do not have business on their hands. Prices are 10 cents more expensive than the market is looking for.
On the last day of the show, one of my Chinese sources (himself a hide trader) reported: ‘Tanners are trying to bid down while the American Big Packers are holding their lines. But certain traders have decided to create a market and business at any price and if no choice, to unload their long positions at lower prices in order to move on.’
The situation regarding the highly publicised shut down of the Kemu tanning centre in Fujian remains confusing. One source said it reopened after three days while another source commented it is all a lie. Still many think the influence of a closure would be small as among the 63 tanneries, only three medium sized and two small ones are raw hide tanners, all the others are split tanners.
Tanners continue to complain about the high raw hides and the low leather prices which are forcing them to reduce soaking they say. There are more sources who say that the Chinese threats to reduce soaking are bluff. Travellers in China continue to talk about seeing no raw stocks in the tanneries.
At the Shanghai Fair we see many more car leather tanners as exhibitors than last year. Some of their names are new to many and were only heard of quite recently.
A number of people believe that the Chinese used this moment to try and get the market down because they have some time to play it tough while awaiting (delayed and possibly reduced) fresh leather orders. But these same people believe these orders will come one day. Then we shall remember the empty warehouses in the Chinese tanneries again.
Why then, people may ask, are a number traders selling hides cheaper (as reported from Shanghai)? I think the answer is simple. We all agree a tanner can be forced to buy because if he cannot tan he does not work and he has no reason to exist. But the same counts for a trader who went long a while ago, now sees prices are not going higher or at least not at a speed he can follow. If he does not sell, he does not earn anything and has no reason to exist either. He also may have to pay the bank while all his money is locked in the stocks he bought long. So he is forced to sell in order to continue trading, even if he loses money on it. Just like the tanner who was forced to buy.
One basic and very important fact is supply. We still don’t eat more meat which would produce more hides and skins. We use the money that after the recession became more easily available, to buy shoes and bags and cars and leather clothing and other nice things. There have been reports of generally superb results for the shoe brands this year. The meat may come later. There is more pleasure and beauty in a nice handbag than in a steak. Right?
Raw hides and skins continue to be insufficient (I don’t want to say scarce). The leather made from them will be too expensive and designers and manufacturers will look for alternatives and use them. This will reduce demand for leather and reduce the upward pressure on prices. A new balance will emerge. And we will go on as we have done for centuries. Hides and skins will not be burned. The leather industry will continue its fight to keep the price workable.
We already see this in the indication of more interest for lower quality and thus cheaper hides in order to try to make at least a small profit on the present finished leather prices.
Another factor mentioned is that some companies made a lot of money during the many months that prices only went up. For tax reasons they may decide to reduce their taxable profit by investing in buying stocks of raw material before the year end. This would also increase demand.
Next stops to try and make the leather business more attractive: the Paris and Bologna fairs.
Buyers said no the latest high hide prices for German hides and they proved impossible to sell in Shanghai. Some speak about a $10 gap between buyers and sellers ideas! For all hides it meant that if a trader wanted to sell he had to take something off his prices (and this did not count for Germany alone!).
The kill is increasing to normal autumn levels which may also take some pressure of prices. The more since weights are increasing at the same time.
For South Germany, we must now see how far the European car leather industry is prepared to go. It is a well known fact that their sheer need of the best raw material and its scarcity can make them accept higher prices than anybody else.
For now prices are still those of July. New prices will be fixed (week 37). Although there is no reason to reduce prices from the abattoirs’ point of view. The bigger numbers that will become available may make them accept a little bit less (estimated 5 cents per kilo) but also this is not sure yet.
Lambskins: There is confusion about the fact that prices for European skins are expected to come down while in Australia and New Zealand they are exploding. New Zealand lambs are very good for garments but not for shoe or handbag production.
Australian lambs and woolly sheep are mainly used nowadays for the production of the high fashion UGG doubleface boots. The Chinese tried to buy Merino lambs in Europe to do the same but it is only possible with a small percentage of them, so they went back to Australia.

Although there was plenty of activity at the Shanghai fair, many had expected more people there. Further, the fair has confirmed what we knew already but made it much more clear:
1) Leather orders in China are there but show reduced demand from the upholstery and bag sectors, a somewhat better demand from the leather garment sector (sheep) and a consistent and good demand from the footwear sector. The car leather sector remains as always a special case, with good interest for very specific items
2) Tanners show ever more resistance to raw prices which do not allow them to work profitably
3) Meat packers do their utmost to stick to high prices. The meat business in general is not very good and thus producers/abattoirs try to get more profit out of their byproducts of which hides and skins are the most valuable
4) The raw market did not really change in a global way in Shanghai
5) The pressure from the buyers’ side may succeed in getting certain prices down to workable levels but not to big decreases. Small decreases at the source will be a hard fight and although the leather industry calls it inevitable we have not really seen it happen on a global basis
6) More interest for low cost origins and even for head pieces
On day two of the fair, an East African shipper reported that the even was full of activity for him. Demand for his cow hides is good while the East African goat and sheep market remains steady. But traders say they have big problems in finding offers and that shippers have increased prices a lot. After the fair we learned that sellers could indeed get better prices but not at all what they dreamed of.
An English hide trader called the fair well attended by the end of the first day. His stand was busy all day but it was all talk and no sales he said. UK hides prove hard to sell as prices are very high. But strange things are happening since there are Chinese tanners who claim to have received low offers and who bought.
A case is known of an English supplier who was offering 36kg+ ox hides at $6-7 below the list price. Others remarked that they wonder what quality he intends to ship against so little money? Or maybe he is just gambling on a much lower market? $6-7 is a lot however!
Chinese upholstery tanners are looking for cheaper material. They are looking again at Venezuelan, Columbian and African and similar qualities again to compare with Brazilian hides. The tanners are still waiting for the best moment to buy and in the meantime hope Brazil will lower its prices (but they have not done so during the last 4 or 5 months - says Sauer).
Car sales in the US came down a lot in August. Almost all the big names reported big reductions in sales. General Motors 25%, Ford 11%, Nissan 27%, Toyota 34%, Honda 33%. Only Chrysler/Fiat showed an increase, 7%.
My Brazilian source at the fair said the second day of the fair was like the first day. He added that the fair looks more professional but the Brazilian tanneries still do not have business on their hands. Prices are 10 cents more expensive than the market is looking for.
On the last day of the show, one of my Chinese sources (himself a hide trader) reported: ‘Tanners are trying to bid down while the American Big Packers are holding their lines. But certain traders have decided to create a market and business at any price and if no choice, to unload their long positions at lower prices in order to move on.’
The situation regarding the highly publicised shut down of the Kemu tanning centre in Fujian remains confusing. One source said it reopened after three days while another source commented it is all a lie. Still many think the influence of a closure would be small as among the 63 tanneries, only three medium sized and two small ones are raw hide tanners, all the others are split tanners.
Tanners continue to complain about the high raw hides and the low leather prices which are forcing them to reduce soaking they say. There are more sources who say that the Chinese threats to reduce soaking are bluff. Travellers in China continue to talk about seeing no raw stocks in the tanneries.
At the Shanghai Fair we see many more car leather tanners as exhibitors than last year. Some of their names are new to many and were only heard of quite recently.
A number of people believe that the Chinese used this moment to try and get the market down because they have some time to play it tough while awaiting (delayed and possibly reduced) fresh leather orders. But these same people believe these orders will come one day. Then we shall remember the empty warehouses in the Chinese tanneries again.
Why then, people may ask, are a number traders selling hides cheaper (as reported from Shanghai)? I think the answer is simple. We all agree a tanner can be forced to buy because if he cannot tan he does not work and he has no reason to exist. But the same counts for a trader who went long a while ago, now sees prices are not going higher or at least not at a speed he can follow. If he does not sell, he does not earn anything and has no reason to exist either. He also may have to pay the bank while all his money is locked in the stocks he bought long. So he is forced to sell in order to continue trading, even if he loses money on it. Just like the tanner who was forced to buy.
One basic and very important fact is supply. We still don’t eat more meat which would produce more hides and skins. We use the money that after the recession became more easily available, to buy shoes and bags and cars and leather clothing and other nice things. There have been reports of generally superb results for the shoe brands this year. The meat may come later. There is more pleasure and beauty in a nice handbag than in a steak. Right?
Raw hides and skins continue to be insufficient (I don’t want to say scarce). The leather made from them will be too expensive and designers and manufacturers will look for alternatives and use them. This will reduce demand for leather and reduce the upward pressure on prices. A new balance will emerge. And we will go on as we have done for centuries. Hides and skins will not be burned. The leather industry will continue its fight to keep the price workable.
We already see this in the indication of more interest for lower quality and thus cheaper hides in order to try to make at least a small profit on the present finished leather prices.
Another factor mentioned is that some companies made a lot of money during the many months that prices only went up. For tax reasons they may decide to reduce their taxable profit by investing in buying stocks of raw material before the year end. This would also increase demand.
Next stops to try and make the leather business more attractive: the Paris and Bologna fairs.
Buyers said no the latest high hide prices for German hides and they proved impossible to sell in Shanghai. Some speak about a $10 gap between buyers and sellers ideas! For all hides it meant that if a trader wanted to sell he had to take something off his prices (and this did not count for Germany alone!).
The kill is increasing to normal autumn levels which may also take some pressure of prices. The more since weights are increasing at the same time.
For South Germany, we must now see how far the European car leather industry is prepared to go. It is a well known fact that their sheer need of the best raw material and its scarcity can make them accept higher prices than anybody else.
For now prices are still those of July. New prices will be fixed (week 37). Although there is no reason to reduce prices from the abattoirs’ point of view. The bigger numbers that will become available may make them accept a little bit less (estimated 5 cents per kilo) but also this is not sure yet.
Lambskins: There is confusion about the fact that prices for European skins are expected to come down while in Australia and New Zealand they are exploding. New Zealand lambs are very good for garments but not for shoe or handbag production.
Australian lambs and woolly sheep are mainly used nowadays for the production of the high fashion UGG doubleface boots. The Chinese tried to buy Merino lambs in Europe to do the same but it is only possible with a small percentage of them, so they went back to Australia.