The skin market goes up in mini-rally, after years of decline

The values ​​of CATTLE hides have experienced a mini-recovery in recent months, after years of steady decline.

Hides business sources told Beef Central this morning that the market hit its lowest point during the height of COVID last year, but began a recovery from late 2020 that had only done so. accelerate this year. Some values ​​are now three to four times higher than their low point last year.

This year’s price spike started around the Chinese New Year in February and accelerated through May, before a brief adjustment seen a few weeks ago.

China’s recent demand was described as “pretty huge” just a month or two ago, but has since fallen silent again, for the reasons outlined below.

A number of influences appear to be at play, not the least of which is that global economies are starting to recover from COVID.

As Beef Central reported earlier, the value of cattle hides has steadily declined over the past seven years, but the arrival of COVID last year has pushed the market to new depths.

The price of some pelts in Australia last year fell to US $ 8-10 each, either at or below breakeven. Poor quality hides were landfilled or squared, rather than sold on the global hides market. Some beef processors paid freight on salted skins, at a loss, just to get them off their books.

“Prices were still going down anyway, but COVID last year only made the situation worse,” a source in the hides trade said. Many tanneries and leather goods manufacturers in China and Europe have closed for long periods in 2020.

“There were optimistic comments on the outlook for the Milan leather show market in February of last year, but immediately after that, news of COVID broke and the market collapsed again,” a- he declared.

The application of economic stimulus measures by the governments of many countries around the world, in the wake of COVID, has had a major impact on the growth of the skins market.

“Governments around the world have provided incentives to build new homes, and consumer spending on consumables to fill them has increased. Part of that money was spent on buying leather furniture, new motor vehicles with leather seats, bags and handbags, and other items, ”the trade source said.

“Around the world, economic recovery has become a factor in demand for leather – it has turned out to be the reverse effect of what some feared at the onset of COVID, which some feared would cause a recession. “

General consumer confidence is also on track to be restored in many countries, especially as large-scale vaccination begins to protect more citizens from infection.

Price in recovery mode

From the low around breakeven point on skins at around A $ 10-11 last year, the market has since “doubled – then doubled,” Beef Central was told.

Hides were once again contributing to the value of slaughter cattle, after years of being almost “worthless”.

“When China launched more vigorous buying in February / March, the trade was taken by surprise,” our trade source said.

“It was not expected and prices have doubled quite quickly from these low levels,” he said.

Demand for leather car seats is a channel that is fueling the cattle hides market this year

Quotes for Australian hides this week have good quality Victorian steer hides at $ 1.10 to $ 1.25 / kg, making a 40kg beef hide worth over $ 40. Deep in the market last year, those same skins were making weak teens. Lighter cowhides of around 24kg are worth around $ 27 this week – but still considerably higher than where they sat just a few months ago.

Queensland type steer hides this week bring in around 90c / kg, which works out to around $ 30- $ 32 each for typical weight. These same skins were on the verge of unsalability at the height of the market stagnation. Cowhides in Queensland this week were selling for between $ 22 and $ 23.

In the United States, the benchmark beef skin from Texas recently hit US $ 50, the highest price seen in a few years. At their lowest point in the current price cycle, Texas big steer hides have hit as low as US $ 16.

But when you factor in that the ten-year average price of Texas heavy oxen is around US $ 70, the current market is still far from historical values. In 2014, at an all-time high in the value of hides, the Texas heavy steer hides market reached US $ 128, which puts the current market recovery in some context.

During the peak in hides prices seen seven years ago, good quality large Australian hides were worth between A $ 120-130 each, or about 9-10% of the overall value of a steer. Today, even with the recent recovery in market prices, this value share is still well below 2pc.

China tries to curb prices

As pelts prices rose rapidly this year in March, April and May, Chinese buyers (who account for 90% of Australian pelts) have tried to stop the market surging. Mid-May offers were generally down $ 2-5 from previous rates, Beef Central was told.

However, since Australian beef mortalities (as well as those from South American beef producing countries) were so low, the pressure on production volume was not as great as it was during the drought years of 2019-2020, when livestock mortalities reached record levels.

Many Australian brokers have been sold more futures than they normally would, given the surging market for skins, so when the Chinese pulled the pin last month, many vendors weren’t that worried. and did not accept lower price offers, Beef Central was told.

A stalemate has since emerged and sales have slowed since May. But while lower prices have been taken by a few suppliers, the current stalemate in the world between buyers and sellers of skins is in favor of suppliers, due to low slaughter rates in South America, due to the low slaughter rates in South America. Australia and Europe.

“Buyers are doing their best to take advantage of the market, but suppliers are not playing the game at the moment and the low production is helping their cause,” the hides trade source said.

“In some cases, some buyers have actually returned to the market in recent weeks and paid a little more than before.”

As China continues to dominate the global skins market, other players including Italy, Vietnam and Thailand have also been more active in quality skins, having become almost dormant during the COVID period. low demand for leather.

Another explanation offered for China’s attempt to bring down the prices of skins is an apparent bottleneck on motor vehicle production around the world, caused by lack of access to computer chips, which has slowed production. overall motor vehicle. Fewer cars coming off the production line means fewer leather car seats, that was the explanation.

So where does the skin market go from here?

“The issues that existed before COVID – including the switch to very ‘compelling’ synthetics – have not gone away – nor have the challenges with automation,” the trade source said.

“Go to any Harvey Norman outlet, and it is very obvious that a lot of people today cannot tell the difference between real leather and man-made materials on furniture,” he said. .

“Leather prices are unlikely to return to where they were in recent decades, but if they do exceed a certain level this year, the risk is that the designers and end manufacturers of ‘leather goods’ Are once again removing the real leather from their activities. ,” he said.

“Another factor in future prices for hides is the huge impact government stimulus packages around the world have had on leather buying habits. In Europe and North America, it is said that there is a lot of pent-up demand and money in the system. But once that stimulation tap is closed, what happens then? ” He asked.

“A lot of consumers have probably spent their stimulus check now, but they’re not going to get that one-time payment anymore. This may present something of concern in terms of future demand for leather.

“But the economies of many countries now appear to be doing well, job growth is widespread and stock markets are once again near record highs. Times like this, backed by consumer confidence, often translate into higher demand for genuine leather items, of all types.

The progress of synthetic leather

As Beef Central explained in this previous article, the value of hides is declining in the long term for a number of reasons, including the rapid progress in the production of synthetics that closely mimic real leather. The record values ​​of bovine hides observed in 2014 were attributed, in part, to rapid progress in the manufacture of synthetic “leather”.

Footwear was the only sector of the leather industry that has not been given a significant boost by government stimulus measures during the recent COVID period.

“The shoe industry is a special case for leather, as the production process used to ‘cut’ the material used to make shoes is now highly automated,” the trade source said.

“Cutting robots can use a uniformly shaped ‘roll’ of synthetic leather much more efficiently than irregularly shaped cattle hide,” he said.

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