What happened this week: This week is a repetition of the previous one. It is quiet, it is even very quiet, but it is not dead and there are isolated trades with the very regular buyers – enough to clear the low kill we are facing at this time of the year. That does, however, not prevent from the persisting slide of prices which is mainly still caused and triggered by a general quiet tone which is leaving some origins and players pretty much forced to try to stimulate the demand by reducing offering prices. Still, this is nothing spectacular, because there are so far no big stocks accumulated and nobody has yet been forced to dump any hides. The hard fighters are again the Italians, who have pulled out their old strategies by using the upcoming holidays to force sellers into price concessions. Until the summer holidays most of the raw material procurement is already done.

For August only a handful of operations are open and can take raw material shipments and so the ‘after the holiday’ buying has started pretty early this year. For European suppliers this means that hides will have to be stocked for a while in the warehouse with all the risks and problems involved. Those who are less focussed on the Italian market will possibly bet more on the replenishment of demand in China which has to come earlier than the re-opening of the Mediterranean tanneries. However, for the time of year, the Chinese market is not impressively active and with the exception of some dairy cow demand, the buyers are not showing too much interest in European hides.

The Euro got a hard beating this week and the debt crisis of Greece and its threat of spilling to other countries is weighing heavily on the European currency. Politicians can’t agree on a solution and the fear that it could become another hard threat for the financial markets and the global economy is rising daily. This might also be a good reason for everyone to act and plan as cautiously as possible at the moment. Cash-flow is mentioned more and more at the moment and many can no longer finance the stocks they used to carry, and would like to have. Letter of Credits are still coming in, but many report that it is no longer as easy and timely as it has been.

Many tanners seem to be caught in the trap of restricted cash and low stocks. All this may also explain why many report larger physical stocks in some warehouses around the globe, although at the same time sellers and statistics are talking about regular and consistent sales. So, where do the hides come from then, if it is not a delayed shipping schedule? The opposition reports about low inventories in the tanneries and the interpretation is that buying will have to come soon. Maybe it is very easy: the hides are already bought, but not yet taken and this is possibly because of some deviation needed in China (customs inspection) and restricted cash in general.

In case this scenario has some truth in it, it would also mean that the market is very sensible. If prices move down, the hides will not be taken in great speed, and this will add to the trend.

It seems that the summer could be good for some excitement after a pretty moderate spring in the end. In the end it seems that the key to the next market move is pretty much in the hands of Asia, and that means in the hands of China. With rising interest rates and a general tightening in the money policy, it doesn’t seem that the industry – except the really strong hands – will have the same and easy access to money as they had before. This is actually supporting the large industrial operations in the country and this might be exactly what the government wants. It also means, however, that they will need more hides, which they hadn’t planned for while, and a lot of raw material could get stuck in directions where it can’t reach its final destination in the mainland. This could also create imbalance, as in many instances industrials are favouring other raw materials than the small and local units.

Trading during the week was focussed on the renewal of regular long-term contracts. The firmer USD was a good help when the timing was right and in the end we sold, with little activity, a satisfying number of hides. Prices at the abattoirs came down finally, and slowly we are returning to a more adequate valuation of the raw material. Still a bit to go, but a first step was made. Prices were sliding for males, but kept almost steady for cows due to the help of the USD by midweek. Unfortunately the level of males is still far too high to make them really attractive for Asian buyers. They try to find something as a substitution for the US material, but continental European bull hides are not yet the answer.

The kill: The kill remains slow. The holiday in Germany on Monday restricted the numbers and prices for live cattle. The slaughter statistics for April showed a 5% decline and we now miss what we got at the end of 2010. Weights are low too and so the calculations remain problematic despite the falling abattoir prices. Next week the numbers should be a bit better again just by having a full production week, and maybe farmers will be attracted by high cattle prices and let some more animals go.

What do we expect: We don’t think that next week will be a week of change. Sellers are not yet stressed enough to get nervous and buyers can still hold out and wait if things turn to their favour. However, we are getting closer to the showdown now. In the meantime we think that dairy cows are close to a bottom while males – at least up to 40 kilograms – should still adjust further. So, it will most likely depend on the progress in the global economy where more problems are seen than chances.

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