What happened this week:  The further the week progressed, the more things started to calm down. The upcoming carnival week in Europe and the Chinese New Year holidays in Asia were setting their traps and it seems that almost everyone was happy to take a break. The only ones who would probably like to see more momentum are the butchers who see an opportunity to take full advantage of the market dynamic.

During the past week, most of the market firmness was focused on the heavy and top-quality material, where most players are convinced that the reduced kill cannot meet the actual demand from the leather industry and this opinion is likely to prevail for the weeks or even months to come.

Whatever the real situation, the market is starting to react. Some EU tanners have indicated they will reduce soakings and stretch existing inventories to escape from the present supply squeeze and the consequences can be seen at the raw material price front.

Tanners in Asia are not predictable at the moment with most of them now finally shut down for their Lunar New Year break. In any case, the resistance is growing week by week and day by day and is just being covered up a bit by the currency market, where the euro continues to lose what was gained up to December 2009. However, the market is divided in its opinions and the majority favour the view that the firm trend will continue for quite some time. The argument sounds plausible assuming that the supply is low, warehouses are empty, leather demand is decent and most suppliers are sitting on forward positions.

So, this is building ambitions, which are in full speed now. For many players it is more a question of having hides rather than how much they cost. In the financial world, many are using the term 'risk aversion', of which hardly anything is seen in the hide business. However, no matter how bright things may look today, the risk potential for the broader picture is growing. At least for Europe we should not forget that, at today’s levels, replenishment costs are far too high for the present leather prices, negative cash-flow is generated, credit insurance covers are suddenly insufficient at the present price levels and the high season for leather production will soon be at an end.

This does not take into account the fact that the economic outlook for the EU zone is not particularly bright. So, who can be fully convinced about the sustainability of the trend, which is possibly only a market reflex as a result of the stock replenishments and overreactions in 2009 following the financial crisis at the end of 2008. In the same way that it took time for the market to correct the unjustified collapse of 2008, it might now take time to correct the present celebrations, but we are convinced that the actual price levels are not a reflection of the market realities.

Trading was light again. There is little to offer and little demand, and the latest asking levels are not really attractive anymore.   

The kill: The present weather conditions are still weighing on production. The kill is not particularly good and there is not much to expect in the weeks to come. 

What we expect: In the coming two weeks, we are not expecting anything to really move the market. Chinese holidays as well as carnival and skiing holidays will reduce trading activity to a minimum. With a few exceptions, it also seems the immediate hunger has been satisfied.

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