What happened this week: There continues to be a massive discrepancy in terms of the day-to-day hides business and concerns about the start of 2010. In Europe I think business is done for 2009. Most tanneries are closing for two or three weeks over Christmas and soakings will start to wind down and stop from the end of next week. Everyone will stop tanning by next Friday at the latest, and then re-tanning and finishing might carry on for a day or two.

At the same time, the kill is now in full gear and most hide suppliers with insufficient salting capacities are fighting hard to place as many fresh hides as possible into their regular buyers’ drums.

Overseas business remains reasonably steady. Buyers want the product they have bought shipped before they shut down for the Chinese New Year. This only leaves shipments until the end of December at the latest and it is a great struggle to get enough shipping space to move whatever is ready.

So, as active as it now is, more question marks are popping up for January. European tanners will mostly reopen after January 6, which will interrupt shipments here for almost three weeks. Asian shipments will most likely be subdued during the first half of January 2010, so shipments will be far below production for almost four weeks.

As long as sales and leather demand resume at present levels things should be ok. If, however, the present enthusiasm fades and the present price levels dampen demand, things could slow down against all budgets and expectations. The biggest threat for the market is the fact that leather production is not profitable anymore in most cases at today’s price levels. This raises the question of whether, and by how much, tanners can increase leather prices in order to accommodate hide purchases.

Exactly a year ago, right in the middle of the financial chaos after the Lehman disaster, most companies trimmed their budgets for 2009, and today we know far too much. Over the year the pipeline was refilled and ran at more realistic levels, possibly somewhat lower than 2008. Now the budgets are being made for 2010 and, although most people we speak to are cautious, the budgets are all substantially higher than a year ago, which explains why there has been such a run on hides in the last quarter.

It seems likely that the consequence of these higher expectations will be higher raw material budgets. This is unconfirmed as yet, however, and nobody knows whether today’s expectations are too optimistic in the same way they were too pessimistic a year ago. One market where consumption continues to be brisk is China. Other markets may be more optimistic, but the economic realities do not yet justify this.

Trading activity this week was a bit mixed. While business in Europe was limited to some final gap fillings and programme renewals, Asian buyers remained reasonable active. Price-wise, negotiations were not easy until Friday afternoon when the US$ reversed its trend momentarily. It is still impressive how many cheap hides suddenly turn up and there were plenty of reports about cheap hides being offered and sold from Italy and France. Despite the fact that a lot of the price differences are justified by the difference in quality we were impressed by the volumes, because so many were pretending to be sold out. It is just going to be interesting to see whether the hides will fulfil buyers’ expectations when they arrive at their destinations.

The good part was that it allowed us to move some of the low grades that had been disregarded for such a long time by buyers who were only looking for the better hide selections. Prices were reasonably steady and if there were any variations they were rather on the up than on the downside. Sales were across the board and material that was offered was eventually sold. 

The kill: The kill remains steady now on the higher levels. A few cold nights have bolstered production although butchers are still complaining about beef demand. Consumption is still focused on cheaper qualities such as pork and poultry, while beef is said to be on the sidelines in the supermarkets. This is something we are also hearing from other European countries. For the weeks up to Christmas there should be no more changes and only the shortened Christmas week should down be a bit. 

What we expect: We think the market has found a level that is going to be the base at least until the end of the year. It is unlikely buyers will be aggressive enough to push prices higher in the short term and sellers are comfortable enough to defend the levels reached until the reopening in 2010. So, trading is likely to be somewhat coincidental and it is hard to believe anyone will take any outstanding position until after the Christmas break. Consequently, price variations should be more related to individual decisions and currency movements.

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