What happened this week: The fundamentals are clear and offer a very solid base for a market valuation. However, as usual, different players have taken up their own positions and then seem to expect things to work out in a way that will make their dreams come true. We have a market that has the Christmas season now followed by Chinese New Year in the early part of 2021.

The first wave of production for this busy season is easing and, with holidays in front of us, the demand for raw material is slowing. Many in the beef industry around the globe are convinced that next year we will see the end of the pandemic and a substantial return of demand from leather manufacturers with, consequently, rising demand for raw materials and rising raw material prices. It would be nice if it were that easy.

Unfortunately there is no longer a correlation between the cycles of the economy and the price of hides and skins. A long time ago one could rely on this, and raw material prices were always an early indicator and ran six to nine months in advance of the general economy.

These days, leather demand no longer fluctuates with general consumption trends. Leather is no longer a base material in many consumer products. Leather has become either a luxury or niche product or it is simply price driven, as we can see in the upholstery market this season. When it beats other materials on price and offers the chance of better sales and better profits, it is used.

How much room there is left for price increases we will see in the season to come. For now and for the rest of this season we have already had a pre-taste. Hide prices for standard upholstery leather have hit the ceiling and even those Chinese tanners who had a lot of cheap hides to bring the average cost of their raw material down are now displaying rigid resistance to any further price increases. As usual suppliers trying to play a wait-and-see game, resulting in a stalemate.

On the other side of the table there are tanners, in particular in China, who they should buy up material that offers a good opportunity to fill their warehouses again at a cheaper level between now and the end of January. The big problem is obtaining sufficient freight space, something made even more difficult by the greed of shipping companies; if they insist on imposing ‘peak season surcharges’, it could become another serious factor pretty soon.

This left a lot of negotiations unfinished last week and it’s going to be interesting to see if they can be revitalised this week. The total number of sales could have been adequate except for buyers asking for prices to take into consideration weaker currency levels and higher freight charges; this left the volume of sales at pretty low levels.

The kill: The kill seems to go up and down from one day to the next and from one abattoir to another. In aggregate, the levels are below what is expected during the peak season, but not worryingly low.

What do we expect: We have no idea how long it will take to bring things into balance again. There is demand out there, but only at a certain price level. It looks like the struggle will continue before the next large round of sales can be finalised. 

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