What happened this week: Another Hong Kong Show is over and the question is if we really obtained more insight and information about the market and the conditions. Drawing the bottom line we would say the three days did not help us very much to get a better picture about the situation. The story of the fair was in the end about the question of whether there is a shortage of supply or not.

With many tanners searching for a reason why raw material prices had been shooting up in the first quarter, it was for many a story which was understandable. While the kill is reduced in  some regions of the globe, it does not consequently mean that there is not enough raw material available to satisfy the present requirements of the tanning industry. We are also not questioning that specialty items are in short supply, but in our opinion the general statement of supply shortage cannot be confirmed. Finally we suspect that as far as trading is concerned not many people found a compromise or a solution to the problem.

Buyers were pretty cautious to express their positions and the only clear picture one could get was their confirmation that most tanneries at the present raw material price levels cannot produce any positive margin. Leather prices could not be increased enough and a number of tanneries from the upholstery sector were even reporting moderate declines of their revenues. Consequently  buyers were either very prudent to buy and just listening to the stories and the asking levels while others were quite ambitious with their price ideas. Those who had the intention to cover some raw material need were improving their ideas, but actually not really meeting the level I was looking for. We are uncertain how much business has actually been concluded during the show, but we have the impression that the volume in total was not big.

For the bigger deals both sellers and buyers were not yet willing to surrender and it might need another couple of weeks to see what is really more dominating: buyers’ need to replenish their inventories for the second quarter production, or sellers needing to move the hides arriving to their plants. It seems to us that it will require just a few more weeks to see who has to give in first. What we definitely bring home is the fact that many players try not to let the market find the price levels, but in particular the big producers are trying just to set price levels and to push them through. We hardly believe that this can work in the long run, but it makes the dynamic and flexibility of the market movements far more difficult.

Everybody has to go to the producer of beef to buy the hides and if these people are just digging their heels in and becoming inflexible for negotiations it is very difficult for smooth price adjustments, but it has to be expected that price changes will rather become more erratic and extended. Furthermore one has to realise that there is the declining interest of the producers to share realistic market information with the market place. Quite the reverse; one has the impression that information is now exclusively used to manipulate or push prices in whatever intended direction.

As far as selling was concerned we were pleased to see our regular buyers, who were willing to get as close as possible to the prices we needed. Sales numbers were acceptable although not particularly impressive. The main interest was for dairy cows and ox/heifers; we would say all the sales were rather for the relation than really for any serious need of supply.

The Kill: The kill remains subdued due to the poor beef consumption and the upcoming Easter holidays will not support numbers either.

What do we expect: We would be surprised if the situation changed very much in the coming weeks. Buyers will just take bits and pieces and definitely shy away if somebody tries to get more money out of them. The fair next week in Italy will give us further information about the need of buyers, but fundamentally we are convinced that prices have now started a moderate retreat and it will take a while until the real balance of supply and demand is re-established again. For the coming weeks fixing the right abattoir prices will be more important than anything else. After that new discussions can start.

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