What happened this week:  Well, the world is different than a week ago. The tragedy in Japan has shifted the focus quickly and people are rather worried about their safety, buying iodine tablets and instant food rather than bothering too much about general consumption. Our thoughts and empathy are with all the casualties and relatives in Japan, with those who have died and those who had to flee, were evacuated and lost their homes. Whenever such a catastrophe happens it is hard to sit warm and cosy at a desk, and not be able to do much more than to be grateful that it did not happen to oneself.

The interpretation of the impact on the businesses is pretty different. Some believe that it will be the same as before. After a while the media will lose interest and the rest of the world will just return to the normal routine and things will just continue as it had been before. Others think that ‘only an earthquake and tsunami’ would not have been enough to shake the world, but the terrible accident in the nuclear power plant in Fukushima will eventually rock the world and change a lot. So far, one thing is true. The reaction to the fundamental risk with nuclear power is totally different around the globe and is ranging from easiness to hysteria. While the shock of the situation will fade eventually, certainly the discussion about energy production and consumption will become a major issue for the global community and be far more than just the question of whether the oil price is high or low.

The hide and skin market is still undecided if it should just ignore what has happened or if it should start to worry if the bull trend could be broken by just such an ‘external accident’. While the Lehman crash in 2008 had a direct impact on the global economy, this time it is rather indirect and should have a longer lead time, but could still be as critical.

For the moment sellers are trying to be pretty unimpressed by the situation and reports from most origins are still pretending to see good interest, low supply and rising prices. This might even be true, but there is also the other side of the coin where an increasing number of tanners are starting to refrain from following the rising market and some are even mentioning that they would rather sell existing contracts and stocks  and collect a decent profit than turn the hides into leather and make a loss. There are arguments and examples for both positions.

The big industries with their long term budgets and plans can’t and will not change their strategies quickly without being clearly forced to do so. They march along and consequently their demand remains unchanged and high. The less industrialised and embedded ones are more sensible, cautious and quicker in their decisions and they have become pretty prudent.

Despite all the positive reports, we have to admit that activity for us has been pretty quiet. The automotive related hides are still moving while all other items are getting more difficult and in particular dairy cows cannot be placed anymore at any adequate levels in relation to what they cost today at the abattoirs. The imbalance between abattoir and market we had been lamenting about last week is becoming more problematic by the day and the falling USD is not any help either.

However, as in many times in the past, the period prior to the Hong Kong leather fair is frequently dominated by market caring activities and hardly any seller likes to see the market correcting before the big get-together in spring. Why? Well, we don’t know. As much as luxury and top quality raw materials are still justifying their price levels, the more commodity types actually do the same, and without a clear confirmation of further increases of leather prices, the present levels can hardly be justified nor maintained.

The coming weeks will be able to deliver all of us more information on what we have to expect. And so trading and sales were limited this week to low grades, the sale of heavy males wherever contracts had to be renewed and clear resistance and absence of interest for hides such as dairy cows for the Asian market. Standard upholstery tanners and the shoe upper buyers, which had been supportive in the past weeks, are also not considering the hides to be an attractive alternative anymore. Prices are ranging at levels which are 3-10% below what is needed to cover the cost at the abattoirs, but so far not too many seem to bother.

The general consensus of our colleges still seems to be that the sales will get right eventually.

The kill: The kill remains pretty low. Beef business isn’t good enough and export shipments are missing. While in our region the slaughter of cows is still pretty regular, the kill of males has further declined, leaving supply in command of the market situation. We do not expect anything that can change the situation soon.

What do we expect:  We could possibly just copy our last week’s statement into this one. We don’t feel comfortable about the situation. It is not the demand and supply situation, it is just the level of prices our market has reached which is worrying. There is pretty little choice than to hope that the alternatives will follow their forecasts and rise to make our hides competitive again. If tanners can actually afford and handle the levels then the next question would be answered. Until the Hong Kong fair, nothing will really happen as nobody will take clear positions and decisions before having the chance to obtain the sentiment and information from this melting pot of the trade in spring. So, we will just sit tight and wait for the feedback from the meetings out there.

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