This week: The European and the Asian markets continue to develop in opposite directions. Asia, with the dominance of China, continues to show opposition to the present price levels, which, by the way, they created themselves with the buying frenzy in March. It is the return of the boom and bust, which we see so often in the Far East.

In Europe, where buyers were quite prudent in the first quarter, tanners must now stay in the market, just because they do not carry the same levels of stock as their Asian colleagues. Everybody is complaining about the price levels, but what can one do if the raw material is on the road, at the premises of your supplier or even still in the fields? There is still a need to fill the drums and to secure raw material supply.

This happens almost every year when tanners run into a situation at the beginning of the second quarter when generally the European kill declines. This is a reflection of the raw material supply-and-demand balance, which is at price levels that continue to be inflated and have been rising too fast and too far for the leather industry to absorb. To sort such a situation out, the timing is poor. In the end the industry has to finish this season’s production to meet leather orders. At the same time, it has to prepare the path for the business and pricing for the next season.

We are now entering a complicated period. The declining supply of raw material is putting suppliers in a strong position, while the tanning industry is not completely comfortable with the price levels it has to pay. This normally carries on from week to week and month to month, sometimes throughout the whole summer. However, this year we have some clouds on the horizon which should be watched carefully.

Almost daily, there are reports of a slowdown in vehicle production owing to a shortage of components such as semiconductors. Automotive tanners do not seem yet to see any decline in orders, but we have learned in the past that planning in the automotive industry is not really one of the key competencies. We also know that activity in China will depend very much on the balance between existing stocks of wet blue and new leather orders during the summer.

In general the pipeline has been sufficiently refilled. In particular in Asia quite a number of hides are still waiting for shipment or are in transit. These hides and their value still need to be digested. Holding stocks of cheap hides is one thing when you lack sufficient leather orders, but seeing the average cost price of stocks rising fast is a different question.

Sales this week were completely focused on regular buyers from Europe. Asia was completely quiet again and many clients and agents who were pushing hard for offers a month ago do not even bother to react now. Prices were steady at asking levels in Europe. We do not have a clue if Asian tanners would buy at any price at the moment; this week, they were not buying, certainly not at steady, asking levels.

The kill: The number were once again a little better, but nothing out of the ordinary. The month of May includes a few holidays and we expect the kill to remain on the low side. Average weights are not changing much.

What do we expect: Europe will mostly wait now for the next round of abattoir buying. We lack confidence that Asian tanners will have any reason to come back to the negotiating table any time soon.

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