What happened this week: Although we did not have any holidays this week, the general market was influenced by the vacation in China, which started on Thursday, and the accelerating decline of the US$. The greenback fell to levels well above 1.40 against the euro and this is around 7% lower than in the last seven days and almost 14% compared with February levels.

The largest part of the problem remains with the hide processor because slaughterhouses are finding it difficult to understand that demand is good but prices should not go up. Nobody can deny that demand for hides has been pretty brisk over the past few weeks and overseas clients want the hides they bought shipped. So, the problem is getting enough shipping space to quickly move all the hides that should be on the boat. Reduced numbers of vessels and the heavy weights of hide and skin containers in large numbers are not making them popular on already fully booked vessels.

Tanners aren’t reluctant to open L/Cs and are finding it pretty difficult to understand how it can take up to three weeks before the vessel leaves when they were used to having the goods shipped within a few days after opening the L/C. With consistent demand and shipments the inventories in many warehouses have been melting quickly and we would not be surprised if a number of producers have already rebuilt a decent forward position in a number of the main categories.

Asia continued to buy hides although the negotiations were tough because of the currency situation and net increases could not be achieved for cows. Even the net returns in euro declined despite some improvements in the US$. The situation in heavy bull hides is better as the hides that have been pretty much controlled by European buyers for ages have found a decent fan base in the Orient now.

Sales are still decent and are taking a number of hides off the market these days. With the lower kill and the falling weights, heavy bulls have already become a bit scarce. Some of the automotive tanners need to replenish inventory and so this is actually the only material where, for the time being, the market imbalance has shifted to demand.

Despite the decent sales, we still believe that the rest of the market is still in reasonable balance with only the low grades still failing to move the way they should. The market still buys mainly from the top but, if the present price levels can be sustained, a bit of room will open up for the absolute ‘no-gos’, the cheaper and lower quality hides.

However, everything will depend on whether the massive round of raw material purchasing is terminated suddenly. It would not hit the European market that hard because we are entering the low killing season, but in the US it is quite the opposite. Fundamentally, the number of international leather sales is not really justifying the volume of raw material sales and shipments at the moment, but should we complain? When has the hide market ever really reflected the economic realities? 

The kill: The kill remains seasonally low and, with the holiday this week, numbers will not get any better soon. Weights continue to fall and will soon be at the lowest levels of the year.

What we expect: The weak US$ will keep the market under control. It is hard to believe that further price rises will be readily accepted by buyers except by those who need to fill a gap here and there. With the high level of shipments it seems there isn’t much room on the downside either. So, unchanged with less trading might be the best bet for the week.

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