What happened this week:  The abattoir market continues to operate in orbit on a space odyssey and is losing more and more contact with ground control. The main markets in Southern Europe are still on holiday, but the rest of the trade has returned to the office. However, there are few intentions to reward the enthusiasm at the abattoir doors, where prices continue to rise.

One really has to wonder whether people realise that central European hides are still not setting the global market levels. The hype in the market for heavy material for the automotive industry during the first half of the year has is still having some after-effects and has catapulted the level of all hides to levels far above the realistic value of the material. This has been covered up by the sharp fall of the euro, the exceptionally low kill in the spring and early summer and the seemingly endless need for hides from the automotive tanners.

During that period, supply became the idol and price the false prophet. Restructuring in many EU markets added to the trend of shrinking supply sources and all this has mixed into an explosive cocktail, which could become lethal for one or the other in the end. Tanners are now fighting hard for price increases for leather and, from what we understand, they have been obtained in a number of cases.

This has certainly not happened to the point that is needed to cover the present raw material price levels, so many tanners have now come back from their vacations with the firm intention to squeeze raw material prices lower to return to profitability. At least in the European industry it seems that they are reasonably well prepared for the battle. It seems that a number of tanners might not have large stocks, but at least they have physical inventory for a while and supply contracts to bring them even further.

Not that there are piles of hides, which could keep tanners away from the market for long, but it will keep them long enough to scare some suppliers at the levels we have reached so far. This has made discussions with tanners pretty difficult. Asking prices had to be lifted from the levels seen before the holidays and this was not met with much understanding or positivity. The discussions were not emotional, but it was pretty clear that higher levels are no option at this stage.

In Asia we found a pretty similar pattern. Despite the upcoming fair in Shanghai, the regular buyers are not particularly resistant and are even willing to discuss sales, but certainly not at higher levels. While dairy cows are presently at least still close enough to international levels that a few painful sales can be generated, dairy steers are so far from the levels of the reference markets that the gaps of 10-15% between bid and ask are simply too wide to find any chance of sensible discussions.

This left market activity pretty light again this week and we would say that people are happy that we are getting closer to the ACLE. Hopefully the trade will get a better picture then and whatever the impressions and results are it is time the market got its feet back on the ground. This will either be by a good result and rising prices in other markets or a more conservative view for the rest of the year and a price adjustment back to the real value of most of the EU hides.

Looking at the general economic news, there are concerns about the outlook for retail later this year. News about the economy in the US and Japan, in addition to flat developments in most of Europe, leads us to believe that the trend of private consumption will be less positive than expected and that retail will not reach the levels set in the budgets in the coming season.

This would prompt a demand problem, which at present does not exist. For now, most of our hides in the region are too expensive and only a handful of grades such as light and top quality material are still able to survive the problems stated above.  

The kill: The kill fell back a little from the levels we reached in previous weeks. The pipeline following the holidays seems to be refilled and now the beef retail situation will have to confirm the slaughter levels. We won’t get a clear picture about the regular levels before the beginning of September. 

What we expect: Everyone is now waiting for the results and impressions from the Shanghai fair. Demand for hides in general is still reasonable, but we are fighting in the first instance with the excessive price levels and the massive discrepancy between abattoir and market levels. So, independent from the general market trends, this gap has to be closed and the next two weeks will tell us which way it will go. For the moment it seems more likely that we will correct to the market rather than the market correcting to us.

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