What happened this week: This week was another reasonably quiet one. European tanners seem to be done for the year; planning of final deliveries and filling gaps here and there were the dominating factors in terms of activity.

Most of the industry was busy closing the final abattoir purchases for 2009. This wasn't easy because the reasonably strong sales in the last quarter have made butchers pretty ambitious again and it took a lot of effort to explain that the price levels currently being paid continue to reflect the market levels and that higher prices are unjustifiable.

Although the US$ has gained about 3% and sales have been adequate recently, a lot of old and cheap contracts still need to be fulfilled. The currency was a pain up until a week ago and never compensated for rising levels price levels.  Anyway, following the chaos in the summer, the price levels have found a normal and balanced basis at the abattoir again and we will have to wait and see what the new trends are early in 2010 to see where things will move in the future.

Fundamentally, our hide prices have returned to workable levels and are trading today—considering the currency influences—at a pretty fair average value. They are not too far from the long-term historical average, in fact.

Sellers will always argue that prices are too low and buyers will always claim they are too high. These opinions will never match, so people should possibly agree that prices are presently trading in a healthy range at a level where they are neither under or overvalued. Leather prices, which were much deflated during the crisis, will also have to return to more 'normal' levels to match what raw materials are costing today.

So the time of the price depression is over, whether the global economy in 2010 develops in as positive a way as many think, or whether people find themselves disappointed. The question that remains is whether those that are already predicting further price advances and higher average prices for 2010 will be correct. We have our doubts. The gains seen since April 2009 still need to be digested and a lot of recent buying has been on the basis of lower price inventories and, consequently, still workable average prices versus the present leather prices.

This effect is now fading quickly and tanners have more and more to calculate according to the market realities. We still have to deal with excessive tanning capacity and the fact that consumer product demand will not allow leather prices to rise sharply. This could propel us into a tricky first quarter as it has done many times in the past.

Leather production is still high and raw materials are reasonably scarce, which could possibly push prices higher if tanners still need to buy. However, higher prices will certainly reach a climax when people realise profitability cannot be achieved and that the consumer product business is still far too dependent on the hype in China. We know that the raw material market doesn’t care about any of these long-term thoughts, but it is still worth mentioning.

Trading during the week was pretty much based on isolated flurries of interest from China. What is remarkable is that the big industrial tanners are not the key buyers today. Quite the reverse; they are pretty quiet and are sitting on the sidelines. Most of the interest and purchasing is coming from small tanneries in the north and south of China who are not even importing directly, but are using importers or relatives to purchase material.

Everybody knows this is not the premium clientele. Although they are active when the market is firm, they quickly disappear when the trend changes. Most premium suppliers around the globe do not even bother to deal with these customers, so traders are busier than producers. Anyway, demand is demand and, if there is anything good in it, it at least offers people the chance to move some of their cheaper, low-quality articles. 

So, most of this week’s interest and sales were focused on 'price' items and the premium ones were left aside. Prices were rather steady, a fraction higher for low grades, and were supported by the stronger trend of the US$ toward the end of the week.

The kill: The kill continues to be good, at least in our areas. Lousy weather conditions and the upcoming Christmas season is keeping butchers busy although they are not getting tired of mentioning that margins are poor and that the beef business is worse than expected for this time of year. We don’t think the kill is anything exceptional, but it is pretty regular. One disappointment people could have is the weights, which are still running low for this time of year. This week will be the last full killing week prior to the Christmas break and should offer steady volumes again.

What we expect: The coming weeks will depend on overseas interest. The business in Europe is done and only some deals for January programmes will be booked this week. The market remains on a solid footing. The rise of the US$ is supporting it and seller are optimistic about January and have no reason to bother themselves about lower bids. Anyway, trading should remain light and prices will stay steady to firmer.

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