What happened this week: Another interesting week came to an end. All around us everybody was pretty excited and most market reports were talking and reporting that prices were further up. In contrary, we found this week pretty quiet. In Europe most of the Catholic parts were busy celebrating the end of the Carnival season while in Asia buyers didn’t show the same ambition and interest they had in the weeks before. This may also be related to the shortened offer lists, but we believe that the number of tanners started to lean back and to think about their situation.

A number of our regular clients told us seriously that are thinking about changing the raw material supply to more economical origins and that they now spend a lot of time with their customers to discuss how to prevent against the sharply rising raw material costs. E-mail and phone calls asking for offers are fewer and fewer. Lower quality offerings and higher prices had never been a very healthy mixture. The only exception might be the sectors which have been the strong performers for a while. Some of the buyers who are in need of extra heavy and top quality bullhides are still not sufficiently supplied and some which were pulling out of the market in January had to return and found the market pretty empty. If they traced somebody who was willing and in the position to offer them any product they had just to pay the price asked.

For the other more standard articles the situation is definitely not that easy. Looking at the price increases which we have seen at European abattoirs since the beginning of January and the equivalent of price increases in overseas markets, it is not very difficult to understand that prices in our area have been overshooting once again. We know that we are not very popular with this opinion, but there’s a big difference between the firm market and overvaluation of raw material. A lot of people are just looking at the boom in commodities and believe that this can just be transferred into the hide market too. We continue to disagree and without a sharp rise in leather prices we are not at all convinced that the present price levels will be justified at the end.

However, for every cautious player the battle is definitely lost until April. Sellers feel comfortable and they still believe in more need-to-buy situations in the tanning industry and this will make them continue to raise asking prices. Although it is only the end of February it seems that the run for the first quarter is already done and any preview of the present trend cannot be expected before the second quarter.

The reports about leather business haven’t got any better in the past week. The most positive one can hear today is that a tanner is happy, that he took the right purchasing decisions and is now looking at reasonably priced inventories. Replenishment costs are actually not making anyone happy and the price levels we have reached are straining the cash flow positions pretty hard. Interest this week was pretty lacklustre. Some late comers from Asia are still sniffing around and a few bits and pieces with tanners who had to fill production gaps and had to take whatever one still had in stock. This was basically enough to support prices and most colleagues are just worrying by how much the market will go higher in March.

The Kill: The kill is pretty steady on the low levels. We would say that we are approximately missing 5 to 10% of the numbers we would consider to be normal for this time of the year. Weights are also still falling well behind the seasonal average.

What do we expect: It is going to be a tough time ahead. Butchers will now try to squeeze the very last drop out of the market. There is not good news for buying prices and with the falling value of the US dollar we don’t see that this can be converted into adequate selling prices. People will be pretty relaxed until they have gathered in Hong Kong and Bologna, which may be the two events which are able to give us a clear explanation of whether leather prices will justify raw material levels or if we have to get ready for some new turbulence over the summer.

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