What happened this week: The general focus is shifting back to covid-19 cases. After a summer with a solid return to near normality, many have taken it too easy and ignored the fact that the virus has not just disappeared. Nobody knows what will happen next although it is unlikely at present that full lockdowns are to be expected again. Nevertheless, concerns are rising that the economy could be affected once again.

Reduced slaughter in many regions around the world, in combination with the strong performance of raw material purchases since mid-August, have changed the mood and the pattern.

Supply and the conflicting hope and fear of higher raw material prices have created a situation of further rising raw material prices possibly wiping out the margins that deflated raw material costs made possible.

It has to be admitted that better business is, so far, based on three aspects: seasonal activity, the domestic Chinese market, and a strong performance of leather in the upholstery sector. This is good but the question remains if this is enough in terms of volume and whether it is a sustained trend for the industry as a whole. 

Without the side leather (shoe) and luxury sector, albeit with rising and wider recovery in more global leather clusters, the present situation looks a little uncertain for a solid market recovery. The end of September is too early to feel totally safe. We would feel much more comfortable if we could see a real return of leather in the shoe sector and a return of leather as a prime material. For the moment, reduced slaughter, a recovery in consumption, and replenishment of inventories have laid a positive base for sales.

The solid rise in prices slowed this week. Only marginal increases were paid, and the firmer US dollar offered slightly improved returns. Interest from China in hides for upholstery continued to be stable, but the time and effort to come to a price agreement was intense. Male hides continue to find their homes in automotive productions, but the lighter weights continue to underperform in the side leather industry. Chinese tanners press for quick shipment, meaning they have insufficient stocks and not much confidence in what may happen after their current orders are dispatched. Interest for November shipments was far less than for hides that could still be on the boat within the next three weeks.

The kill: The kill is beginning to rise slowly, although beef business is not reported to be great. This applies to prime cuts. However, as we progress towards the last quarter, beef consumption will rise.

What we expect:

This week has not been the full test we expected. However, we continue to believe that we have now reached a level where a bit of patience might be wise, to see how many leather orders can be collected by the tanners to allow them to take decisions about their next move in the raw material market and set the next trend. Until then, stable is the most likely option.

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