What happened this week: We believe it’s fair to say that the market and most players are in a kind of confusion. There are presently so many factors in situations, but most people fail to have a clear picture what is really going on. After the strong sales numbers which have been reported from the US two weeks ago most optimists were convinced that the market had found the bottom and the period of correction would be over. However, at the end there was no follow-up of business to confirm that the market had ended its descent and would be on safe ground again. It might have found some ground, but one does not have the impression that this ground is really solid and safe.

Consequently one has the feeling that most sellers and buyers remain pretty nervous about the situation. The reports mentioning the decline of leather demand are getting more numerous and we are also entering the low season of production which will last until September. The optimists are pointing to the fact that the Asian tanners need to come back into the market soon, and if they want to be prepared with sufficient raw material supply they will need to act soon to assure that their shipments of raw material will arrive in time for the start of the high season of production after the summer break.

Generally we have to accept that tanners are still not happy with the raw material prices reached so far. Profitability is not yet fully regained. The commodity hides have already seen some decline, and there are more and more reports about sinking prices for premium veal skins and top quality heavy hides for the automotive industry. These raw materials which had been protected for so long by the tremendous demand for luxury goods and large order books for prestigious automobiles are facing headwinds too, despite the good sales. The raw material prices were also too high and tanners were preparing to refrain from buying and soaking to get away from the weekly need to search for products.

In the market for veal, the custom inspections in China also play an important role. A lot of the premium veal had been imported into China using channels which allow a massive reduction of taxes and customs duty and that has for the moment almost completely blocked. Some are of the opinion that the prices for veal were inflated due to the reduced import costs. The remaining buyers in the markets, predominantly in Italy, now see their chance to get the prices for raw material back into a trading ranges which they consider to be more adequate for the leather prices obtainable. As a result, there is a lot of movement in the markets.

The isolated positions of bulls, bears, stocks and need-to-buy create a lot of isolated market conditions which do not allow a general market statement for the whole at the moment. The currency has also played an important role and the quick and steep reactions of the USD in the past three weeks were adding to the instabilities. When the USD fell sharply, USD hides were more attractive and the wave of sales in that week was possibly misguiding the market players for a number of reasons. Who knows if re-sales of hides in relation to the tax evasions were reported and the original contracts were not cancelled in the numbers. The large proportion of EU purchases has also been inflating, but cannot be considered a repetitive selling potential. Last but not least the EU hides which not have been sold in the same period must also be accounted.

Well, in the end there was trading and hide business this week. Some of the regular buyers from Europe and Asia turned up and took a reasonable quantity of hides and that made the statistics look better than the feelings. A lucky hand on the currency market and a fair treatment by the regular buyers allowed the prices to be less depressed than what we heard from other trades which were reported from various markets. The interest was mainly for cows from overseas and bulls from Europe.

Ox/heifers which had been one of the market favourites for so long struggled still despite their fair valuation in comparison with the USA hides they are mainly competing with.  

The kill: We are in May and so the kill remains on very low levels. We have no indication that this is going to change in the weeks to come. Weights are also now quickly falling to their annual lows and this means that calculations will remain under severe pressure as is usual at this time of the year. There are still some holidays ahead and so there is very little hope for any change for the better in the weeks to come.

What do we expect: Last week we were already of the opinion that the market has not sorted itself out. As we explained above there are still a lot of tensions, positioning, interests and opinions which prevent the market from balancing out and putting the various hide alternatives into a normal valuation spread again. We don’t know what needs to happen to accelerate this process a bit. Tanners will not yet surrender in their attempts to push prices lower and we don’t see any serious arguments at the moment from sellers.

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