What happened this week: All eyes were focussed on the Lineapelle in Bologna. The number of visitors was not too bad although as usual the first and the last day were much less attended. However, a lot of visitors from all over the world were seen and one could recognise that many had just come to get a better feel for the market and to meet with customers and colleagues to discuss the present situation of the market. People have not been sure about the situation for quite some time now and so they took the chance to have the concentrated number of tanners, leather buyers and raw material people in one place.

The opinions about the present situation in the hide market remain pretty different. This might also be caused by the fact that the situation is not uniform. As far as we are concerned, we think that the results of the show were quite reasonable. High-quality leather, fashion and design still find enough interest from around the globe to keep the manufacturers of these products busy and they are far less impressed and touched by the present uncertainty in the general market for standard consumer products. So it was good to see and to meet a number of tanners who were quite pleased with their business so far in 2011 and were also optimistic for the rest of the year and the season to come.

High-quality shoes and high-quality leathergoods are still in good demand in particular in the emerging markets, where the money and profits are made today. Unfortunately this is only the minority of the global leather production. The majority of production is still focused on standard consumer products and here the price is still the main parameter of decision. If somebody really still needed confirmation that the rather high prices for raw material in the second quarter of this year have an effect on demand, we would say that they finally got the confirmation.

For a number of reasons, leather demand is down for upholstery and side leathers. However the main reason is the price, which made manufacturers and retailers refrain from more leather use. In addition, retail sales in the past months did not meet the budgets and the uncertainty about the global economy and in particular about the solution of the European debt crisis weighed on optimism and caused further concerns. Last but not least, cash flow issues are also a very negative factor. From many parts of the world and for different reasons one is hearing reports about payment delays and cash flow issues which are slowing deliveries and acceptance of shipments down. In a market situation like now where many raw material prices are sliding and falling it might even be used in one or the other case to depress prices even further.

In the end nobody is really comfortable with the present situation. Tanners need lower raw material prices, but they don’t like the road to get there. Same applies for raw material suppliers. Everybody knows that it’s very difficult to escape from losses and problems when prices fall. However, one day it has to happen and we might now be finally in full swing of the price correction. This might not hit all products and qualities in the same way; however the trend can’t be avoided.

In the end we also all know, that if leather prices can’t be pushed higher there is very little option other than to see the needed adjustment in raw material prices. Now the main hope is that the decline can be continued in a controlled way. We would say that the trading activity in the show itself was pretty light. There were bits and pieces done, but mainly again for the top quality and specific niches. For the average hides which needed support, not much help was yet generated. From Asia we saw some interest for dairy cows and if one was failing to accept serious counters, some business was done.

The big problem remains the male hides between 20kg and 30kg in Europe, because they are simply too expensive as a result of the strong demand for the heavier types. We would say that prices in average are down by 3 to 5% depending on the product and sales. 

The kill:  The slaughter numbers have risen and reach levels which are normal for this time of the year. Weights are still totally unacceptable and we expect them now to rise in the weeks to come. We expect that smaller levels will also remain adequate in the coming weeks.

What do we expect: We think that most players have now accepted that prices face adjustment. Now the people have to figure out how much this is going to be. Anyway, the market is going to find a safe bottom again eventually. This will not be easy, because interests, opinions and positions are still pretty wide spread and a lot will depend on whether butchers can be convinced about the present realities.

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