What happened this week:  While most of the trade in Europe is still on holiday, the first holidaymakers are starting to return to their offices. This applies mainly to the northern parts of Europe. When people there started to sort their paperwork out they found, surprise surprise, that there were a few gaps in their production schedules. Consequently, a few inquiries came round the corner for isolated lots; mainly for male hides.

Apart from that very little was seen. There were bits and pieces from Asia, but even the strong rebound of the US$ did not trigger much inquiry and it seems that most tanners are waiting for the trade to arrive in Shanghai for the All China Leather Exhibition so they can get a better idea of the real market situation.

In particular the 'good names' were quiet and claim to have enough product in-house or on the water until they have a clearer picture about the market situation and about their leather orders and prices. So most of the activity related to smaller operators and importers and trading companies with lesser reputations.

The sharp turnaround of the greenback, which gained around 3% during the week, helped to make the few bids out there a bit more attractive, but it only eased the pain rather than removing the problem of margins and calculations. Only lower prices at the abattoirs, or another strong decline of the euro, can solve the problem.

Leather business is not delivering any new directions. There are still concerns about the future of the US economy and, consequently, consumer spending in America for the rest of 2010. Despite the unbroken growth in the Chinese economy, enthusiasm is also fading a bit, although action undertaken by the Chinese government seems to be working well so far. In Europe things are a bit mixed and although the German economy has shown a strong rebound during the second quarter, concerns about the debt crisis are returning to the headlines at the moment. As a result, many are now waiting to see how things look after the summer holidays, which this year were taken as a real break all over.

The next obstacle will be the return of the European industry before the end of August and questions over whether payments will resume. The VAT fraud problem in Italy and the possible cashflow problems could possibly create delays or failures. However, the industry has easily handled the sharp rise in raw material prices so far and tanners were obviously better financed than anybody expected. So, the hopes that there will be fewer problems than expected have gained some ground.

Interest rates remain low and so far banks haven’t been as restrictive with loans as we expected. We still believe that the key to the situation will be whether the tanning industry can operate achieve profitability. We still doubt this for the majority of the industry at the present raw material price levels. If tanners can still operate at a profit or at minor losses, only the supply and demand situation will determine the market trend. This is not allowing for much movement at the moment because the volume of existing business is still sizeable enough to absorb the present hide production. Despite the slow performance of the upholstery market, even the hides related to this segment are still moving in sufficient volume.

However, demand is not strong enough and the outlook is not positive enough for the industry to push prices any higher for the time being. This has kept us within a very narrow trading range for some time and has seen processors and tanners slowly draining the money from their pockets. There is no question that the market desperately needs a clear indication in terms of leather demand and prices before decisions and preparations can be made for the future.

In any case, the kill will rise towards the autumn and we are now waiting for news as to whether the rising number of hides will be absorbed by the market at the present price levels. Since we still believe that our hides in most grades are still fairly overvalued at the abattoirs we still consider a correction not only a necessary, but also an expected option to prepare for the start of the new season. 

The kill: The kill started to improve this week. With the holidays coming to an end in Europe, the holiday mood is also dwindling in the slaughterhouses. Temperatures are normal, so we should slowly start to return to the normal levels we saw prior to the peak during the last quarter of the year.

What we expect: We still fail to see or find any reason why the present agony in price movements should end in the coming week. Until the end of the month it seems that the only thing that could push players to act and to trigger larger up or down movements will be surprises from the financial side.

Share this story: