What happened this week: Week after week we are waiting for the normal, logical decisions from tanners after the market’s long, steep rise. However, it isn’t happening. The total volume of trade might be slowing and the numbers might be lower, but they are still easily enough to clear the weekly productions.

The one thing that has changed is the pattern of demand and business. A year ago, when hides were cheap, overseas customers were upgrading and buying more expensive hides at reasonable prices. Today, the European tanners have regained more and more control of the upper end of the quality list and the Asians are trying to save by buying more economical and lower-grade materials from Europe now. The number of premium-quality buyers is constantly shrinking. So, the activity this week was, for the first time in a long time, dominated from the European customer base. 

Demand from some automotive tanners remains intact despite complaints about prices. It seems some brands have released very positive outlooks and budgets for the second and third quarters, which will require further replenishment of the supply pipeline. The same applies for premium upholstery leather and, last but not least, for premium leathergoods. This keeps tanners buying and they are snapping up whatever is on the market.

This continues to give the impression that nothing will be able to stop the market for some time. The warning voices are falling silent and the normal resistance from tanners is fading; in many cases we get the impression they have finally surrendered. As the concerns are fading, the number of those predicting a 2010 with no market correction is rising and more people are predicting rising rather than falling raw material price levels.

While this might be logical from the present supply and demand situation, it still ignores the question of profitability in the supply chain. It doesn’t concern butchers and cars will continue to be built whether leather is too expensive or not, but for the majority of leather products the material still plays a dominant role in the entire calculation. In the Western world, price sensibility is still very high and it will be very interesting to see whether the strong performance of the consumer product demand in the emerging markets will permit the necessary rises in finished product prices.

In the meantime, the values that are having to be paid at the abattoir doors are already implying further gains for raw hide prices in the coming months as their levels have very little to do with the actual market levels. While special hides such as heavy bulls might still have their own and individual levels because they are unique for some, the levels for more standard materials can no longer be justified in relation to the price levels of potential substitutes.

Although the US market, for example, is also still firm, the price increases seen in recent months are rather incremental and EU hides are starting to look pretty overvalued in most cases. However, this only matters if the value of hides is still being measured in terms of leather revenue and not as an investment in expectation of higher raw material prices.

Trade during the week was reasonably active although the Asian customer base was almost totally absent. This was compensated by strong demand from European clients, and not all interest could be satisfied. Prices rose again moderately, but  the variations were not significant and it was more a question of whether to sell or not to sell depending on the opinion one has about the market in the near future. Here the opinions of many market participants are drifting far apart.

The kill: The kill remains pretty low. In particular, the kill of males remains far behind normal. Slaughter statistics for February showed a solid gain of about 5%, which is compensating a bit for the sharp decline seen in January.

What we expect: So far, the market is still being pushed forward. However, price resistance is increasing and for each step taken on the selling market the abattoir prices are taking two. There might be some who have held hides back to gamble, but this effect will now fade. Butchers are in complete control of the market and will not consider any adjustments until there is a clear sign an accumulation of hides is building and that financials could eventually do damage.

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