What happened this week:  This week the highest market priority was to digest the sharp price gains we have seen in the past weeks. The market trend was already firm for quite a while, but basically prices rose rather incrementally from week to week. The big jumps we have experienced now in the past weeks are something new and they happened on pretty critical levels.

The tanning industry was possibly already expecting something bad, but the extent of it came as a shock. Nothing is more difficult than seeing money flowing down the drains with little one can do about it at this moment. Consequently, tanners are now searching for alternatives or solutions. Depending on the production field and articles there are some options. For the top end of luxury leathers there are very few, for high quality upholstery and automotive a few more, but not enough and the further down one moves on the quality list, the more tanners are finding alternatives or pulling back, because ends don’t meet at all.

For heavy bulls most tanners had little alternative other than to buy what was offered. Whether this was at the prices asked remains the secret of the individual trade relation, but in general we have the gut feeling that the range of prices was pretty narrow and in the end the resistance was limited, as long as the prices remained within a certain level. For cows, the situation was completely different. Abattoir prices for females were pushed higher and to the same extent as the bulls, but without any real justification, and we believe that there has so far been very limited success to pass them on to the market.

Asking prices and price lists were all adjusted according to the move at the abattoirs and a lot of suppliers entered the week with optimism, but were unable to trace any positive feedback to the levels needed. So, the decision was either to adjust the asking levels right away and to seek some compromises with regular buyers to keep things running, or to accept that the market is not ready these kinds of the levels and to decide to lean back and to keep on trying and fighting next week. It seems that one had to be lucky to obtain counters or interest at about half of the money paid to butchers. Maybe some were more capable, but we didn’t see much of it our concerns from the end of last week have been confirmed.

There is no question that the tanning industry is now feeling a lot of pain and decisions on how to handle the situation have to be taken. In China one hears that the first leather sofa factories are already shutting down. The Chinese government is tightening credit facilities further to cool down the economy and to prevent inflation. In Europe, credit insurance cover and financial resources are becoming daily a more important subject of discussion. Very little is needed to create bigger problems in the cash-flow.

First quarter production and sales still run on reasonably high levels, but spring and summer are coming quicker than one expects and turnover will then quickly melt down in the production industry. Relating to this, one can also hear about a decent volume of re-sales from tanners who had the courage, the wisdom and the money to carry stocks from 2010. They are now taking the decision to re-sell to those who are short of material and need prompt goods for their production. Those who are selling are obviously thinking that it is better money to lock profits in immediately than to bet on better returns in keeping the raw material for later production into leather. Those who can raise cash now seem to be preparing for the time when money will buy cheaper hides once more, while others who need to invest their remaining cash could now face problems.

Sales and business this week was in the end normal in volume, at least for males. This is also safeguarding the market, because as long as hides are moving and are paid for, not much can happen. At least half of production is still moving healthily. For the other half (cows) one has to decide to take what the market is willing to pay (and to lose money) or to wait for the market to move higher. Accepting the bids may also move reasonable volume. But it seems we were one of the few willing to keep on moving, and it seems that some others are more optimistic. Maybe they are right to keep hides for the Hong Kong Leather Fair and for more tanners falling short of raw material until then. But maybe not.  

The kill: The kill is again a fraction better, but nothing really worth mentioning. Many people say that the kill is down, because there is less cattle, but the final kill numbers for Germany in 2010 do not show significant changes. The weights are still far below any normal seasonal levels, which means young males and old cows are mainly being killed. In our part of the country the weather is still pretty cold and with the upcoming carnival season we don’t see more volume to come. 

What do we expect: The market is running hot. The demand of the automotive industry will hold the levels steady for the adequate materials, but for the rest it will be difficult. We don’t expect that cows will get the market feedback they need to justify the levels paid. It will depend on sellers’ intentions and positions, if any price reactions will be visible or if the trade will try to safeguard the levels into the Asian tours starting from mid-March. We still believe that cash rules and in the end, financial resources will decide on the trend. For the moment we expect males steady and cows weaker.

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