What happened this week: Most of the week was pretty quiet again. Due to the Dragon Boat Holiday in China, which lasted three days, the biggest global market was in low gear and buyers were able to remain in a 'wait-and-see' mood.

Tanners are still unhappy with raw material prices and feel they are justified in their opinions that prices should still correct further to allow production to occur at profitable levels. Sellers are still taking up the opposite position, as expected, and the large number of US export sales published on Thursday were taken by many interested parties as confirmation that tanners still need to buy and are no longer able to wait before replenishing their inventories.

Many are unconvinced that these figures are a serious indicator of the market trend; they certainly never tell the full story about price ad shipping times. So, while the numbers alone cannot and should not be disputed, there is always a fair chance that a number of larger and longer programme deals have been booked at a fair discount to the actual and published market levels.

This is not really a new policy in keeping official price levels high in an effort to support the tanners’ negotiations over leather prices with their clients. At the same time it safeguards sales and forward positions by selling larger programmes at fair discounts to protect contract positions and invites buyers to commit, giving them a fair chance to process and cover raw material through the large conglomerates at small, but safe, margins.

This is only one theory among several and the market optimists will deny this option and relate the sales to strong leather demand and the need to cover raw material. Well, no matter who is right in the end, a few question marks should be raised at least.

The US economic recovery doesn’t seem to be as robust as many expected and the labour market isn’t showing the recovery many had hoped for. The crisis in Europe isn’t over yet either and the budget cuts in most countries are unlikely to bolster private consumption. Last but not least, the situation in China is possibly not as strong as it has been and officials are raising concerns about inflation and industrial output. This doesn’t take into account concerns over the potential risks following the slowdown in the property market and the related risks. It is worth considering that the risk potential should not be totally ignored simply because of sales numbers.

Other items making the headlines included further arrests and investigations in Italy related to VAT fraud. This still seems to be a long way away from being resolved and almost every day there is further news, which could eventually have a negative effect on the whole industry in the area.

The reports about larger wet blue stocks in China also continue to circulate the trade. Travellers are reporting that warehouses are full of wet blue hides of all origins, mostly left over from 2009 productions. Sellers aren’t rushing to dump the material and are defending their price expectations, supported by the steady raw material markets. Anyway, it seems hides are still parked somewhere along the supply chain.

In the meantime, sellers and packers are still in a position to keep their books and stores reasonably clean and so far this has prevented any dangerous pressure on price and risk for the market, which has been pretty unimpressed by the margin problems of the tanning industry. This is keeping prices pretty rigid with supply and demand, for the major part, still reasonably balanced.

As far as last week’s business was concerned we found it reasonably quiet and only after the return of the Chinese on Thursday was a bit more activity seen. Some smaller quantities of cows were sold at about steady money. Bull hides over 40 kgs are still driven by the lower kill and steady demand. Bull hides below 40 kg are a more difficult task as the hides are no longer competitive on the international markets. US steers, which are their main competitors, are cheaper and the correction of the US$/euro rate has not helped their positions. Prices were barely steady. The weaker US$ has shaved some of the euro returns seen in the previous week, so we would call the market slightly weaker in euro revenues.

The kill: The kill is about to become steady, but is at seasonal lows for the year. Weights are at the lowest levels of the year too and are weighing on the calculations. In the coming weeks we aren’t expecting any changes. The school holidays are starting soon and, from the beginning of July, Germany will be in holiday mood. 

What we expect: Generally, modest optimism is displayed. We would agree that the next four to six weeks will most probably set a trend for the rest of the summer, but we would not set the chances for a positive trend on 50% or more. We still see serious risks for the industry and until the clouds have cleared we remain on the cautious side. We are not specifically concerned about price for the short term, but it seems to us that there are a number of potential risks in the trade which we would like to see to be sorted out first. Until then let’s enjoy the World Cup.

Share this story: