What happened this week: It has been high season—as far as the holidays are concerned. The business and market activity remains pretty slow and nobody was expecting anything else. For the first time in many years it seems everyone has planned pretty well for the summer season. This applies to the supply as well as to the demand side, with supply gaining extra protection from the exceptionally low summer kill we have seen in our regions so far.

Both sides seem to be taking a real summer break and nobody seems to be concerned about procurement or sales positions. Both sides also seem to have comfortable positions, which will enable them to enjoy the vacation and to return to the battlefield relaxed towards the end of August.

The situation in Asia seems to be a bit different as the lead times are longer and tanners already need to start evaluating their needs and feeding the supply chain when necessary. One has the impression that a number had been betting on lower prices in Europe over the summer owing to the holiday shutdown. This might even have come off if the US$ hadn’t reversed its trend and lost more than 10% of its value from the highs seen at the beginning of June. At that time everyone was expecting the euro to fall further and this was anticipated in the raw material priced in euro. However, the US$ didn’t continue its rise, so we are dealing with a large price gap between the current abattoir prices and the real value of central European hides. An adequate market adjustment did take place because of the serious and violent competition between processors and because of the low kill, which allowed isolated trades at high prices, which seemed to justify the abattoir asking levels.

Although many deny the price and value gap exists, it needs to be closed eventually, whether we like it or not. For the time being a large part of the gap is being paid from the pocket of the processor or tanner, but in the end either global hide prices have to see a decent jump, the US$ has to gain massively again or euro prices have to fall back in line with the global price structure. Since there are hardly any unsold stocks and the kill is as low as we have ever seen it before at this time of the year, supply is still protected, but this will not continue and as soon as the holidays are over and mid September comes the situation will change.

It is possible that tanners will lose the gamble and their hopes of falling hide prices over the summer will fall flat. Some believe they will then have to pay whatever is asked in September because their inventories will not allow them to wait much longer. However, when we look at the regular sales, where the statistics are available, and at our own sales, it seems tanners who are in need of hides for existing orders are not holding back and have been in the market continuously. So, it could well be that sales will be as regular after the summer as they have been and the upholstery market could actually deliver positive surprises after having underperformed for a long time.

However, we do not believe the home furniture sector will have a really good performance ahead with the exception of a seasonal uptick. There is another question mark over European car tanners and it will be interesting to see whether the higher kill in autumn will balance the expected higher demand after the summer break. Any imbalance will have a strong impact on the market for males in the months to come.

Trade this week was light again and the falling US$ is making it even more difficult. Hardly any European tanners were at their desks and the prices from Asia were hardly workable, so only patchy sales for bulls and dairy cows were concluded, and these were at barely steady prices in euro. 

The kill: The kill showed only a very small increase this week, so the number was small again. However, in the north the holidays are now in their final lap and the numbers should start to rise again from now. Hopefully numbers will normalise soon.

What we expect: Well, we still fail to see any movers or shakers in the market, which looks like it will remain within the small existing trading range until the end of the month. Without a change in the global markets or a sharp movement in currencies, our market is still waiting for an adjustment in abattoir prices, which is long overdue. For now the market should not move.

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