What happened this week: After many weeks of pretty limited activity, this week we saw a flurry of sales. How much was actually related to purchase demand or a result of the sharp and extended currency movements the coming weeks will tell. Whatever the reason, one could see that Asia is pretty unimpressed by the recent turmoil of the financial markets and Asian buyers don’t think their exports will face any serious harm from the consequences of the debt crisis in Europe or America. There are possibly also those who follow the strategy that it might be better to own assets rather than money when things are really turning sour. Most commodities are still pretty stable and only a few have seen any major pressure and downward corrections. One is cotton, which has been almost in free-fall since the beginning of the year and has now reached levels seen last October. There is no direct correlation between leather and cotton, but at least in upholstery there is some interchange of materials due to prices. It is still pretty difficult to judge how much serious demand is out there. The low summer kill in Europe is showing its momentary influence and supporting those who believe that the market continues to be supply-driven. If the general economical dram does not influence the consumer negatively, they might be right. If general optimism is not justified and the consumer watches his money, the high stocks in retail might become a burden.

The beginning of an inflationary cycle is also normally the time for the market bulls, and since inflation rates have started to climb all over the world, they feel even more comfortable with their opinions and positions. The final wrap of the week in regard to the leather business is delivering just the confirmation of the whole second quarter. A massive slow down in upholstery is getting worse week by week. Shoe leather demand and outlook are still full of optimism and automotive is still good, but eroding order books. Whatever auto sales will do after the summer holidays, it doesn’t seem that any of the brands will react with production cuts anymore in 2011. So, production and demand could just be influenced by politics and/or pipeline management.

This week’s demand was a bit strange. Reports from China suggest there is talk of interest for better quality material. If we consider our hides to be part of that sector, we can confirm. Even lighter weight males, which had been not attracting any demand from China for a long time, saw takers. Bids were again ambitious and nobody was willing to pay up money so far, but the high volatility of the currency market with the USD firming up to levels around 1.38 against the EURO offered a short, but effective time window to allow a number of negotiations to be successful. There was consistent demand for dairy cows and surprisingly also the first interest for males was seen. Buyers in the end were accepting levels which were not fully sufficient but were in the end a number of dollars above what they had indicated.

Despite all the conflicting opinions and news about the market we have to admit that we have been able to balance the holiday production at finally adequate price levels. That was not to be expected some weeks ago. The low kill may cost some problems in the weeks to come, but for the time being it doesn’t seem that tanners will be ready to pay more money in the near future.

The kill: We are still in the peak of the low season. This year the slowdown is more pronounced, because neither domestic consumption nor any export business is offering any support to the kill figures. For the rest of July and most likely into mid August there is no indication for any improvement. Weights and kill will remain low. 

What do we expect: This week has definitely brought enough business to take any possible pressure off the market. If the interest persists next week we will get to the decisive point of whether tanners are willing to pay more money to get supply. At this moment we don’t believe that there is such a need for raw material, that buyers will be quickly let the market rise again. So currency will most likely remain the key influence on revenues in Europe.

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