What happened this week: The slaughter industry has been pretty successful to move the market higher now, with a backdrop of generally shrinking supply. In complete ignorance of the general conditions and the economical situation in the leather industry, asking levels have been substantially increased at the abattoirs and obviously nobody is taking into account that the situation for European hides is not the same as it used to be some weeks ago. The impression that the debt crisis in Europe might be easing has given the Euro a lot of tailwind and the currency has actually gained almost 5% in little more than a week. 5% means about $3-$4 per hide which the market at the moment is hardly willing to pay.

Within Europe the situation is not getting much better and with rising raw material prices we are slowly returning to the same problems we had been discussing and facing a couple of months ago. The entire focus of the European slaughter industry remains on the few bright spots which are still luxury accessories made from leather and the automotive industry, which is in premium end is still enjoying a decent order book.

The situation in mainstream production hasn’t been good and isn’t much better today. Many people are pointing to the fact that the hide market globally is trending firmer again, but these people are obviously overlooking the currency effects. European hides had just become competitive again after the correction in November and December and is included as well the declining value of the Euro. The US market may have gained four or five dollars apiece over the past weeks, but if we consider the decline of the US dollar the Euro revenues haven’t actually gone up for European suppliers. Consequently there is very little justification for higher domestic prices. However, we have to deal with the fact that supply control is making the pace at the moment.

Reports from the beef industry about falling slaughter scare many tanners and they try to secure raw material at the corrected levels. That’s what they have done and is why the demand and sales have been pretty adequate on the corrected market levels we have seen since mid December. The key question now is whether this is enough to push the market higher without causing too much economical damage.

Another factor we have to consider is the fact that many Asian buyers still favour purchasing into a rising market as they are afraid and refraining to buy as long as the market is falling. This is certainly adding to the present trend. Anyway, fundamental market trends are hardly changing from one week to the next and so the present trend will continue until it has run its course.

Trading this week was pretty light. The European tanning industry and the suppliers are waiting for the outcome of the next round of abattoir purchasing and the Asian customers were pretty quiet during their holidays. They were willing to buy at the price levels we had been at two weeks ago and asking just the 4-5 % increase for the currency, then they returned quickly to their families and continued to enjoy their vacation. Apart from some patchy sales there was actually nothing going on this week. 

The kill: The beef business is still pretty poor. The slaughter numbers remain on very low levels and with the carnival season ahead of us we don’t expect any major rise in the numbers. The only positive thing we can find are increasing hide weights which are helping calculations a little.

What do we expect: Despite the strong trend we are still not totally convinced, that this has such a solid base to drive prices significantly higher. The slaughter industry will have no mercy and will push as long and as hard as it can. This might, with the help of the low kill, still dominate the market for a while, but economical fundamentals should take over again eventually. For the coming week there will be higher asking prices and little business should still be expected.

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