What happened this week: The market situation is becoming pretty boring. Globally, tanners feel that raw material prices have become too high and need a correction. In some countries the correction is already on its way and it seems that it is not yet finished.

The situation remains pretty much the same. Male material continues to enjoy decent interest, and every round of buying is basically answered by higher asking levels the next day. Some hide types may still even be privileged and supply is still not strong enough to let stocks accumulate in sellers’ hands. Consequently, the buyers’ attempts to bring prices down further are not experiencing much success at the moment.

Other grades, which basically include the lower-quality section and hides that are predominantly used for upholstery production, are still facing strong headwinds from the markets and prices remain under decent pressure. The reductions may not be appearing much in the price lists yet, and sellers are still trying to hold levels up, but we believe that supply is now outstripping demand and sooner or later buyers will need to be tempted with lower levels to come back to the markets and to buy the quantities needed.

Nobody knows where this price level will be, because the majority in the tanning industry need substantial declines in order to feel comfortable with the present situation in the finished product markets. In particular, the market in China is pretty slow and what we expected when the market turned is actually taking place now. Even regular buyers are pretty reluctant to place any reasonable bids and whatever they are willing to indicate is too far away from the price levels they still have in mind for their product.

Even the continuing decline of the euro cannot compensate for the general adjustment that raw material prices, in most cases, have faced over the past few weeks. Here we might exclude the extra heavy and automotive-related materials, but in this field resistance is definitely growing and if the handful of manufacturers ever establish a common strategy we would not be surprised to see a change in the trend, although demand is still pretty strong and with the recent publication of the order books of the German car manufacturers one can hardly believe that demand will actually fade by much in the coming months.

However, this still doesn’t solve the problem of profitability and if tanners don't achieve the price increases they need for leather we cannot believe they will be willing to continue burning money the way they have to at the moment. It always takes a while, but the economics have to work out eventually.

Trading activity during the week was pretty slow. In the overseas markets the prices we need and consider adequate are far from the levels at which buyers feel they should buy raw material. Counter offers were basically answered with silence, as were all sales that could be generated down and Europe and was pretty limited again to heavy bulls and calf skins, where a number of pockets in the market were still available.

However, we still believe these pockets will be filled pretty soon. The general market activity is already turning into something like holiday mood and the World Cup in South Africa is already throwing its shadows. It seems market activity in the coming weeks will be reduced with many people spending more time in front of the television rather than caring about business. This might be a bit exaggerated, but in many countries football and the World Cup is playing such a big role the focus will be quite heavily influenced.

As we said already, trading activity was pretty light, prices were almost steady for heavy males and calf skins and we would say that it is pretty difficult to determine a realistic market level for the other grades because we are unable to generate enough business to justify a clear picture of where the market for lighter weight males and dairy cows really is today. At least for our productions we tend to believe that tanners were paying attention at approximately 10% below the present levels and will possibly be willing to return to the market in larger volumes.

The next four to six weeks will be pretty interesting. The European tanners seem to be pretty well covered up until their holiday seasons and they will most likely wait until the very last second to take any kind of position for the period after the holidays. In Asia the lead times are longer and if tanners have sufficient orders they should return to buying by some time in July at the latest. However, they will definitely do their utmost to reach lower levels first.

The kill: The kill fell back again. Beef business is simply not good and the margins within the slaughter industry are pretty poor. Light kid material was too expensive and the demand for beef is not good enough. This is nothing unusual for this time of year and we believe this could continue for a while.

What we expect: We still believe the market is in correction mood. It is hard to bring this in line with competition at the abattoirs, but the global market doesn't care about regional and irregular conditions.

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