What happened this week: Quite a lot of movement and turmoil this week. After the sharp decline of the USD last week it rebounded strongly this week and, as we all know, the currency movements are sometimes more important than the price changes in the hide and skin market. A nice example was the US export sales statistics, where the weak USD boosted sales in Europe while at the same time sales of European hides into Asia faded week by week. In Central Europe the market remained driven by the extremes, i.e. low kill for males desired by the automotive industry and high pressure on the hides which have to compete with the global markets. This led consequently to different points of view on the market.

While butchers and key suppliers of premium material are convinced that the recent market correction is and will only be temporary, others are more concerned and see more of a correction potential. The tanning industry at the moment can’t cope with the rising cost of production and the actual level of raw material prices. Demand is still generally enough to clear production and that makes sellers pretty comfortable, but due to the profitability problem, the market situation is a lot more fragile than in the first quarter of 2011. It is also obvious that there is a lot of material still in the sidelines of the pipeline and the effects of the tax investigation are also not yet fully digested. Most people close to the issues believe it will still take some more weeks before the effects of the matter fade and the situation is reorganised and new structures are built. In the meantime there are still a number of traders/importers and tanners hiding away and not answering their mobile phones.

Despite all the uncertainties the regular producers are still holding reasonable order books and need constant replenishment of raw material. As a consequence, regular suppliers and producers do not see unsold hides piling up and, as long as product flow is still intact, they are not worried to lose some money on the hides they sell. The general opinion is still that there might be some price fluctuations, but leather demand for the foreseeable future will be good enough to absorb the raw material produced.

In Europe we are now in the low season of production and the limited supply is supporting the market on top. It is interesting to hear the comments of a number of shoe tanners who are warning that they already see clear indications from their buyers that with the coming season starting after the summer holidays, leather is going to be substituted by other materials and this could negatively affect their businesses, independently of the price question after the summer holidays. Most suppliers consider this as a political statement to depress the raw material market before the summer season, but it might indeed be worth watching the situation and collections with care to see how much truth can be seen.

Fundamentally this does not even concern many people, because they believe that the organic growth of consumer demand will be enough to compensate for any change in fashion or material use. This general mindset in the market keeps the price levels better supported than the real trading activity reflects, and the optimists felt confirmed by the high export sales number reported from the USA this week. Well, they should not ignore the price difference which has focused a lot of interest on USA hides and reduced the same for the European material.

The week is ending on a weak note for the EURO and the debt crisis has wiped away almost all of the gains the currency made. This will change a bit of the balance and help the European hides to get a bit more competitive again, despite the large price gap which has to be overcome. Under the conditions, the price slide has come to a stop in the USA now and the situation looks quite a bit better. Trading during the week was still slow. Asian buyers try to play it hard to bring prices further down and pretend that they can still buy US cows at levels below the European. So, negotiations were extremely tough. Europe was again a bit more active and in the fresh hide supply chain, tanners can’t play for too long. The drums have to roll and so they can’t really stay long enough away from the market to have a serious effect on prices. So, cow prices were still a bit lower and prices for fresh male material just a fraction cheaper.

It could also be seen that there is still a wide variation of opinions, by the wide range of prices reported from the various markets.

The kill: The kill is still low and there is no sign of any improvement at this time of the year. Slaughter in Germany was down about 5% in the first quarter according to the official statistical publications. Weights continue to fall, which isn’t good either.

What do we expect: With abattoir prices not having really adjusted in the way the market had dictated, the fight for holding prices will be on again. The USD is supporting the prices for cows in the Far East and so a bit of the pain and pressure has eased. However, the valuation of the different origins is not yet back to normal ratios and so it still needs some movement to get things right again. Possibly the currency market will sort it out too. We think the market will now take a breather and next week we should see many changes until a clearer picture for the summer is achieved.

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