What happened this week: Slowly but surely the realities are breaking through. Prices have already started to fade prior to the Shanghai fair. We would rather say they have been drifting lower for a while, but for the reasons we specified already over the summer, nobody was willing to admit that. Consequently, a handful of trades were on or close to market level enough to support sellers’ confidence to safeguard the market into the new season. The bulk of trades were however discussed ‘off-record’ and guaranteed sellers the product flow to publish their positive notes.

Since the holiday season is now over and the trade has to face the realities again, it is increasingly difficult to close one’s eyes in front of the hard facts. The trips to Asia have started and what travellers have seen does not offer them many arguments for a market that would re-start where it finished before the summer break. Except for consumption in domestic China, most of the factories are reporting lower production and orders and those which are still running a healthy order book do not have or expect prices for leather which justify today’s raw material levels. Those with orders are well covered and the others will cut production.

Automotive is still best, side leather business decent and upholstery by far the weakest part of the leather market at the moment. With no expansion in leather orders, and no rising prices in sight, the meeting in Shanghai will require a fair evaluation of the prospects for the coming season. This means that the price for raw materials and leather have to be put into a fair relation with substituting material to keep the product flow running. In case this cannot be achieved in time, it could lay the base for a bumpy road ahead until the market finds a fair balance again. There needs to be great sensibility between what is commercially needed and the protection of existing conditions.

Apart from the focus on the Asian situation, Italy has made it back into the limelight this week. Two of the leading and largest tanning groups in the Veneto made it into the headlines being accused of tax evasion and ‘black’ salary payment agreement with their workforce. It is a complex subject, but in conjunction with the VAT frauds being discovered some time ago, it is putting a special light on how the industry in that area has tried to preserve their global competitiveness in the leather industry. Although some of the stories are now settled with the tax police and government, the issue has now become so public that more publications are admitting that is was pretty common practise anyway. Not just with the names mentioned in the leather industry.

There was also some trading this week. A handful of sales were able to be achieved. Heavy bulls were the main part of it, garnished with some dairy cows. Bulls at a fraction lower and cows also a fraction lower were helped by a firmer USD towards the end of the week. We heard of ambitious bids for dairy cows. Asian tanners were testing the water while Italians were trying to take advantage of the uncertainty as a result of the news of the week. The market trend was definitely lower although not really finding a clear level yet.

The kill: With the upcoming end of the school holidays in the rest of the country, the kill starts to pick up. Not much, but at least one can talk again of some kind of normality in beef production. We don’t expect many changes in September yet, but the trend of the kill is definitely up now.

What do we expect: The market is under fire now and the trade needs to figure out how quick a new and safe basis can be generated. This basis will certainly be lower and with the news from Italy and the tight money conditions in China, buyers must be expected to remain on the safe side and to remain cautious. For the moment at least, the easy times are definitely over and business will become far more difficult for quite a while until a general market consensus is found.

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