What happened this week: This week the trade was busy to talk the market higher. The question is just how you measure the success. By the few isolated trades who shall confirm it or by the general absence of quality and volume buyers? By the special situations in the automotive and luxury sector or the by stress the normal leather market is facing? Well, in the end everyone finds something what suits his ideas and positions. Sellers play with the supply side and the reduced kill while buyers are pointing on the lower demand for leather in the medium and lower end and the difficulties to lift leather prices to levels which would make the production of leather sufficiently profitable. All this is presently mixed with a nice portion of speculation mainly on suppliers’ side and this is creating the firm trend we are facing at the moment.

Our market is presently not just driven by global enthusiasm, but also by some political games which have become more frequent since the number of hides in the ‘free’ market have been reduced. Industrial players have decided that market control is essential to convert size into pricing power. The interesting fact is now less that it happened, but rather what tanners will do when they see the next offer lists and asking prices.

While the tanners overseas will just compare notes and prices from the various alternatives, tanners in Europe will have a much harder time making decisions. Many of them will now regret, that they hadn’t prepared in time for options when their preferred market origins lose contact to ground control. Well, this statement might still be premature, but the indications are given.

The fact of very slow payments mainly from Southern Europe speaks for itself. Leather business in the medium and lower quality end – mainly for upholstery leathers – is far from being good and tanners struggle from reduced orders and prices. If one reads the writing on the wall correctly, then we are just close to another restructuring in the leather industry that we see almost every decade or so. The excessive tanning capacities face the classic ‘survival of the fittest’ period to be readjusted. Despite all the positive news and opinions about the market we fail to see the trailing of the business activity. Nobody can deny strong and steady interest mid January before the closure for the Chinese New Year. However, at the prices which were valid at the time. With the rising prices and the holidays interest faded significantly and business was limited to the few tanners which were or are still not yet fully covered.

The recovery of the Euro and sharp rise in abattoir prices have actually made our hides far less competitive on the international markets and so volume demand has dried up. Sales during this week were again limited to some isolated sales for different types. Some ox/h, some bulls, some cows. Cows seemed to catch most of the attraction, because they are still the cheapest option in the mix. Prices were steady and what the currency lost was gained in prices with levels overseas still being far more attractive than the levels obtainable in Europe. With the firm tone we still have the impression that less hides are offered than actually available, which is adding to the trend and the market balance.  

The Kill: The kill remains low. Pretty low temperatures, poor packer margins and less demand for beef keep hide supply in tight control. The Schmallenberg virus which is making the headlines in central Europe now hasn’t yet had any effects on the trade. However, one has to keep a close eye on the potential consequences for beef or even hide exports.

What do we expect: A market trend doesn’t change from a week to the next, but we continue to have our doubts about the solidity of the rising trend. So, we have to watch from this week to the next when the resistance and volumes will stop the enthusiasm. In the meantime all tanners with open positions will be the victims of the market trend.

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