What happened this week: Another week has passed and very little happened. Tanners, with the exception of those in the luxury segment, struggle. Leather prices are fixed for the rest of the season, raw material prices are too high since February and energy and production cost have gone up too. What was fine in December is wrong today. Well, this is the view of the tanning industry. The beef industry takes a totally different position. They see the profits of LVMH and other top end brands as well as the premium car manufacturers and feel that they don't get their fair share of the cake. Since there are still a few steps in the supply chain in front of their target and the brands and manufacturers have a totally different opinion about the idea of ‘profit sharing’, the situation is becoming increasingly complicated.

In the case of the European market a few ‘exclusive’ items determine the price level for all. Also, the margin squeeze for the producers in between is getting increasingly serious. It has been mentioned already a number of times. No movement on leather prices will make it difficult for raw material prices eventually. In the meantime we see tanners escaping wherever they can to more economical substitutes. Sellers are sticking to their opinion that lower kills paired with poor beef business and their valuation of the raw material will justify and allow their target revenues. This is leading to a market situation with very limited and reduced activity. Only buyers who need to cover leather orders act on minimal levels and sellers do the same with short offer lists and the never ending story of low kills and limited supply.

This strategy might work for both sides until the summer holidays, but come August/September the cards will have to be put on the table. At the moment the impressions are set rather for a decline in leather demand in the second half than for any increase and the argument on the sellers’ side is that supply will be even shorter. One way or the other supply and demand have to balance eventually, because hides and skins which are not existing can consequently not be tanned, while excessive physical availability of raw material can be stocked.

In our opinion hides prices can only reflect leather prices paid in the market and here we have situation where the market generalises. Presently the expensive high value materials drag the economical ones and lead to imbalances of values and without an upside correction of leather prices we can’t see how this can be sustained. Productivity gains and technical progress have improved values already, but cannot compensate for the present values.

The leather business is still demand and not supply driven and long term influences are more important than short term ones. Trading this week has been light again. Tanners all over buy hand to mouth and pay asking prices where products are needed. Bulls still do better than cows and the headwinds from Asia are actually getting stronger and colder, but so far the supply front still holds and nobody seems to have any interest or need to stimulate demand by price concessions. Shipping space continues to be a problem and also the currency fluctuations are not really triggering any major price changes.

The Kill: Well, we are now entering the low season. Holidays, the spring and summer season and high cattle prices will keep productions under control and kill number down. Cows are going out to the fields and farmers are not really willing to sell more cattle than necessary at the moment. Slaughter weights will fall too and so history is repeating itself as every spring.

What do we expect: The stalemate continues and there are presently no parameters strong enough to move the market strongly in either direction. One fails in the meantime to think about what the trigger for a new trend could be eventually. And so we sit and wait to see who is going to have the next upper hand in the short term. For the next week it seems nobody.

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