This week: We are approaching the end of the first half of the year, which traditionally means a quieter period. The boom this year until March was essentially only for business in Asia. Chinese customers reduced their purchasing activities in Europe after the significant price increases in the first quarter. At the same time, as is always the case in spring, slaughter fell and the European leather industry stuck with its purchasing behaviour. 

Furniture and automotive leather tanners continued to work through their order books, which were well filled, and there were better orders for shoe and bag leather reflecting the growing optimism about an end to the pandemic and more confidence in future business.

As a result, buying activity shifted almost entirely from Asia to Europe as Asian customers’ price expectations and the levels being achieved in Europe moved further and further apart. Such developments are not new, but it is also well known that increased differences in price between these markets usually even themselves out. This was also true in the period from October 2020 to March 2021, when Asian customers were willing to pay significantly more for hides than their European counterparts were. In the past three months, it’s been other way round, led by the prices European tanners have paid for heavy hides.

It remains difficult to analyse the market situation. The influences of logistics, inventories, pipeline replenishment and the emotional assessment of the outlook for the remainder of the year lead to much uncertainty. This means that, above all, the purchase prices at the slaughterhouse are going up and no longer reflect the current market situation. This is slowly being realised by an increasing number of market participants and you can feel that the unbroken optimism of the past months is slowly showing the first cracks.

In Europe, the demand for raw materials is still stable, but the calculations in the leather industry have become very difficult. Without confidence that this same inflation will cause the price of finished leather and other consumer goods to rise significantly, price levels for raw material cannot be justified. In Asia, this conviction seems to have arrived much earlier.

Business last week was once again almost exclusively focused on Europe. From China all that came in was some interest in a few lesser varieties and the prices that were mentioned were well below the general market levels. Bids of 20%-30% below the prices available elsewhere were not unusual and were, of course, rejected. In Europe, the negotiations were extremely difficult, because the new purchase prices for the month of June, in combination with the lower hide weights, made the calculations difficult and the price jumps considerable. It has been extremely difficult to reach agreement and the selling prices are not satisfactory, although they are significantly better than the prices in the overseas markets.

In the meantime, one gets the impression that this situation is also slowly reaching the consciousness of other competitors and it would not be surprising if we were to see some reaction in the coming months. The volume of sales is still sufficient to sell the bulk of production, but sales without profit are not a solution.

The kill: Temperatures are rising sharply and restaurants are enjoying very good business, while supermarkets are seeing a fall in demand. Cattle prices are up and meat companies are complaining about margins. This has ended in reduced kill with lower weights. The start of the summer holiday season and what consumers choose will now determine the kill and consumption until end of August.

What do we expect: We think it is now overdue for the market here to take a break and settle down again. The covid-19 effect will now fade, global supply chain decisions will become more important and, after the summer, we will return to reality and normality in the leather business too. What this means is still anyone’s guess, but it might not be as bright as many want to see and, perhaps, expect at the moment.

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