What happened this week: From our perspective, the market remains within narrow ranges and neither supply nor demand can actually trigger any new directions. The majority of the trade is actually only disputing whether the kill is worse than demand or whether demand is worse than the kill. This means that neither side is really bothering. One has little to sell and the other has no immediate need to buy, which makes for short offer lists and few bids to choose from.

This means we can’t really talk about a ‘market' this week because of the lack of trades and volumes. The few hides offered during the week were taken up by buyers in the Orient where still—independently of the market situation—a few people are still willing to secure a minimal amount of material, although they feel that hides are too expensive. On the other side, people are realising that few sellers have inventory or are concerned that inventory will build quickly, which could force them to lower their asking levels.

Since the summer is now progressing quickly and we have already reached the end of July, a number of leather producers have realised that they must analyse their needs for the third quarter carefully as it is unlikely that too much quality raw material inventory has built over the summer. Despite the fact we think German hides are presently overvalued, the market is not suffering from any demand problem so far and the final order activity from the brands and retailers after the summer break will be decisive in terms of trend for the rest of the year.

Although the news from the US consumer market is not particularly good at the moment, it is hard to find any brands or manufacturers who are concerned about the volume of orders. Anything missing in one market is compensated in another. More accurately, if the US, European or Japanese markets are lagging, this is covered by growth in other markets, predominantly in China. Most believe that this trend remains intact and, particularly in Germany, recent economic news has made people optimistic about the recovery of the economy. Nobody knows whether this is linked to the weak euro, government stimulus programmes and the success of specific German export products, or whether it is a sustainable trend based on further solid trends in China.

For the short term we believe we only have two major issues to deal with. Firstly the question of whether everyone in the industry can handle the negative cash-flow that is being generated in most cases and secondly what will happen as far as profitability is concerned. To put this more clearly, can leather prices be raised to sufficient levels during the second half of the year?

Most people accept that the upholstery leather segment is the one with the biggest problems. It is not only that prices and calculations are problematic, it is also because demand is definitely the weakest across the whole industry at the moment. This segment will possibly produce the first reactions and results in the market place. The order books for shoes, accessories and automotive still seem solidly filled so the economic problems might hurt, but the industry doesn’t seem to have much option in terms of reducing production in the short term.

Sales this week were limited to a few tanners in Asia willing to take the few containers on the offer list. Prices are not making anybody happy and in our case the rise of the euro hasn’t been compensated by export prices or by any decline at the abattoirs. With prices for hides overseas have hardly moved at all over the past four weeks, one either has to bite the bullet or wait for better times. Sales were made for some cows and ox/heifer, while bids for bull hides were far too low, which is not surprising looking at the equivalent levels in the US and other competing markets. Volumes were enough to clean the limited production at the moment.

The kill: The kill was also pretty low this week. Although temperatures have fallen to normal summer levels, beef consumption has not picked up. In our region we expect it will be two more weeks before a moderate recovery will be seen.

What we expect: What could change the situation at the moment? Probably not the physical supply and demand. We think that any movements in August will be related either to the currency markets or to financial issues such as payment failures or unopened letter of credits, but even that is unlikely in the next few weeks. So the situation should remain the same for the rest of the holiday period.

Share this story: