What happened this week: The week developed as expected. Waiting to see and doing the necessary minimum. Where close customer and supplier relations exist, attempts are being made to handle business relations as best as possible. However, nobody is really happy with this and the biggest problem is not whether the market is firm or not, but the level of prices for the majority of North German hides which don’t fit into the global price frame. It is pretty hard to convince and to negotiate when prices are not really competitive, no matter whether they are high or low. We share this problem with some other origins too and it can only be hoped that a fair valuation of hides will be achieved again to return to ‘normal’ trading conditions. This is directly related to abattoir price levels and the outcome and impressions from the APLF show in Hong Kong.

So far, there was only one trend, and that was ‘up’, which encouraged abattoirs and buyers to accept every negotiation over the past months. What was wrong became right by waiting and letting the market rise. The firm trend of commodities in general and the excellent results of selected leather users (luxury and automotive) in particular had blinded the market players to the prices for individual hide types. With the fall of the USD and the different speed of the market rises in various origins, a number of European hides have simply run too fast and too far and now it is difficult to explain to the beef industry that prices should and must come down. They need re-adjustment when more buyers than hides queue up and newspapers are reporting almost daily about fantastic sales results of luxury brands and premium automotive manufacturers. The rational valuation of product is not one of the strong points of the hide and skin businesses. 

So, we have to continue with the same lamento we have been singing for some weeks. However, the market has already lost quite a bit of steam and the most expensive hides are the ones ignored first. As much as politicians and the media are playing down the possible impact of the catastrophe in Japan and the situation in the Arabic world, it leaves traps all over. Consumers around the globe no longer feel as comfortable as they did some time ago. We are dealing with the future and the not the past, which means that a number of players are now getting more concerned about what they have pushed into the pipeline. What they say onstage is not the same as what they discuss backstage at present, as everybody is (correctly) afraid that all their brave plans could vaporise in the drama at the moment.

Let’s also not forget that the debt crisis in Europe is far from over. As a consequence, the attitude of the leather people is to put things on hold before jumping on the bandwagon to push prices further. It seems that we are one of the very few in the hide industry having these concerns and the coming ten days will tell us if we are being too sceptical. Until then, it seems that market reports which are fundamentally fed by suppliers and the beef industry are still drawing a positive picture while the initial reports from people touring Asia and the tanning industry are showing exactly the opposite when it comes to upholstery production. The number of tanners announcing production cuts for the second quarter is growing steadily. Shoe tanners seem to not really know where they stand today. The automotive industry will experience possible production interruptions and slowdowns due to missing parts from Japan. The German premium manufacturers are claiming that they will not have to slow production. They claim that supply is either secured or can be handled by alternatives, so that things will run smoothly. Well, time will tell if that is really true.

Trading was consequently sticky this week. Due to the supply restrictions, it is still not a problem to move males in the volume they come in, but all other grades are not finding their home so easily. It requires good client relations to move the quantities, but the prices needed cannot be obtained. Every sale was a fight not just for price, but also to get reasonable compositions moved. Adding the numbers at the end of the week revealed that it was better than expected, but less than needed for a strong market performance. Sales were fairly well balanced across the offer list. 

The kill: The kill continues just as it was. Low number for males, weights which are still far below the seasonal levels and cows still dominating the slaughter mix. In addition to the prices problem, this can’t actually satisfy anyone at the moment. The end of the milk quota year at the end of March and the cows leaving for the fields should ease cow slaughter into April. With Easter around the corner, the kill should not change much.

What do we expect: Everyone has been waiting for so long for the APLF to open its doors. This year will really be interesting, because the extremes of opinions will be wider than ever before. The key question will be if the leather demand will force leather buyers to eventually pay the price levels needed by tanners to encourage them to return enthusiastically to the raw material market. If not, one can be quite sure that tanners will get more prudent and certainly one will have to expect production cuts in the second quarter that could result in declining demand.

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