What happened this week: Europe is now entering into full holiday mode. Although a handful of tanners in the north have already returned, the vast majority are now on holiday and, for the next two weeks at least, it is unlikely we will see tanners in operation or at their desks. Most have left with pretty strange feelings as the price explosion seen in the past two months not only took many by surprise, but pretty much went against anything they expected when they looked in their order books at the prices at which they have to deliver contracts, and at the season we are in.

The summer is always known to be a quiet time with generally flat raw material prices. This has certainly changed a bit since the market command has shifted into Asia in recent years. Most European players are not extensively covered for the coming months and so many will not dispose of adequate inventories after September. When they look at the price levels today and think about the price negotiations with their clients at the main trade shows in September and October, many are really worried about the times to come.

However, butchers are happy that their return for the main by-product is back to reasonable levels and they are happy to squeeze out of the market whatever drops they can. They are convinced this is simply compensation for the low prices they have faced in the last eight months. As usual, all the interest during the phase of low prices focused on high-end material. After the summer holidays we will enter phase two, where the market has to prove, by adequate orders for finished leather and leathergoods, that demand was not just for buying good raw materials at low prices, but that it is strong enough to spill into the lower end of the quality range and to give the cheaper hides more market potential and sales.

Only then can one really believe in the recovery of the business and that problems for leather demand and for the industry as a whole are at an end. Despite the recent signs of recovery, we are still not convinced that the problems are really over yet. Apart from in China, retail is not showing any signs of a sharp recovery so far and things are simply expected to normalise with regard to a replenishment of the pipeline.

Most of the trade is now bullish and convinced that the market is will continue in August and September what it began in April and May. With most quality suppliers being well cleaned up today, it is pretty easy to take this position and, with the low kill in Europe, there is little chance of accumulating stocks, which could quickly change people’s minds. So the showdown will come towards October when the bottom lines are drawn under the shows and the key industries have a better view on their budgets for the rest of the year and the mood of consumers for 2010.

Trading was light this week, mainly due to restricted offers. Where standard grades were offered into China this week they were snapped up pretty quickly. Low grades are still not finding any homes and those buying expensive hides don’t want to know about cheap ones, no matter how attractive they may look.

The kill: The kill is boring with the abattoirs working in low gear. Beef demand is low and many members of staff are on holiday. There is little chance for any change in August. Consequently, numbers and weights will remain pretty low.

What we expect: Sellers will remain in control of the market just because there is no material pressing on them. Those who want to test the market will be pretty ambitious now as they have little to lose. Tanners who have been caught short will be the victims. It will be interesting to see whether the Chinese continue to support the market at the present levels.

Share this story: