What happened this week:  This week was reasonably quiet again. A few flurries of sales, particularly to China, were seen as tanners took advantage of the sharp correction for cow prices that happened during the last ten days. Many tanners’ target prices were reached, so they decided to book some hides on these levels so as not to miss any chances. However, it was nothing like a major round of buying and buyers are displaying rising concerns about business and leather orders in the fourth quarter.

Most third-quarter Chinese leather export statistics were far from exciting and clearly stated that export orders are down by around 20% depending on market and product. Despite the strong performance of the domestic market in China it is unlikely this can be fully balanced by domestic sales. So, the general mood in the trade is sobering more and more and positions are starting to return to more realistic levels.

International brands are not showing a great performance either, as we saw from the results and forecasts at Nike. News from the upholstery sector was also less than encouraging and most manufacturers one speaks to are reporting an order intake that is just about steady, but still at lower levels than before the crisis began. This is far below the 100% level tanneries are looking for.

In China, most people have left this week for a long holiday as it is the Republic’s 60^th anniversary. People in Korea have also taken a short vacation. Media reports from China about environmental issues related to tanneries have confirmed that the government is still concerned about this issue and it has been confirmed that a number of tanneries in the Fujian province have been closed as a consequence. This isn’t really having a great impact on China’s tanning capacity, but temporarily a number of shipments and arrivals will need to be redirected. It is, at least for the moment, disturbing some of the product flow.

In our part of the world the focus remains more on abattoir buying prices. The global market has a certain level and basis at the moment, but this hasn’t had any serious correlation with the prices paid to the butcher for fresh hides because of political and strategic decisions in the market. The levels are so far out that levels for cows need to be cut by 50% at the moment to bring them back into line with the market realities. In the male section the situation is not as heavy although sharp corrections are needed here. Improving kills are easing the temporary shortage of fresh bull hides and, with the seasonal rise in slaughter into October and November, supply and demand should be in balance again sooner rather than later.

This might also be affected by declining demand from the automotive tanners, who seem to have saturated their short-term replenishment needs and have fallen back into normal production patterns. All in all the unrealistic enthusiasm over the summer has disappeared and concerns for normal bovine hides are gaining momentum again.

The luxury end seems to be doing significantly better and the limited selection of high-quality hides, and in particular calfskins, are still being supported by demand for 'the real stuff' and the finished consumer products where the beauty of the material has an important influence on the purchasing decision. Luxury brands offering top-quality leathers are still attracting enough buyers to support this part of the leather business, but unfortunately it is only a small proportion and only a few raw materials and products are qualifying for a limited customer base.

Prices during the week faded moderately for males while dairy cows were still facing strong headwinds. Low grades did not attract any mentionable numbers of buyers again and have still not found a safe price basis in relation to their better-quality comrades. Sales numbers were better this week than they have been of late, but were still not enough to make up for the limited levels seen in previous weeks.

The kill: The weather is now getting colder and numbers are starting to improve. Butchers are still complaining about profitability. The problems in the milk market will probably force more farmers to reduce their cow herds and it would not come as a surprise if the kill of dairy cows increases substantially when they have to come off the fields.

What we expect: We think that the market will stabilise next week. Many will wait now for Lineapelle to get a final impression of what to expect for the rest of the year. Good-quality hides will hold their own while the pressure on cows will remain.

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