This week: A rather uneventful week owing to the holiday in Asia for Lunar New Year. The start of the Olympic Games in Beijing also played a role as the Chinese government is doing everything it can, despite adverse circumstances with the pandemic, to ensure that the event is a showcase for the country. Under these conditions, it was not surprising that communication with China was limited last week. Without actively asking for answers or demanding information, customers in Asia were obviously very happy not to have to worry about business and not to have to buy raw material last week unless it was the bargain of the year.

In addition, of course, the fact still remains that European hides currently seem relatively expensive by international standards. If we add to this the volumes that the Chinese in particular were still buying from the Americas before the holiday, it is not surprising that there is probably no immediate need for additional purchases at the moment.

This leads us to a situation in Europe that shows itself to be once again extremely difficult with regard to purchasing and the new prices at the slaughterhouses for the month of February. Obviously, those in the slaughter industry thinks that the relatively low kill, despite not being unusual for the season, offers an opportunity for them to improve their overall difficult calculations with a higher return for hides. Thus, demands were made that could in no way be reconciled with the real market conditions.

Again, one is betting on the automotive leather tanners, who one assumes will be forced to accept any price increase because of the lower kill, for the continuity of supply. The next two weeks will show whether this is really the case and to what extent tanners are prepared to follow these demands. However, one should perhaps also remember last year, when similar situations occurred twice and the consequences are well known to everyone.

The relationships between the meat industry and leather industry and the middlemen have always had their own DNA and this does not seem to change. Individual transactions seem to be more important than having consistency and a predictable and secure path forward. As a result of widely diverging price expectations, business in Europe was initially severely paralysed. There are always some who declare individual transactions to be the general market, but that does not make it reality.

The political and macroeconomic environment is not ideal for too much experimentation and the stronger euro is not helping either. Unfortunately, it is always difficult to find a sustainable basis for the business when very extreme positions are taken early on. This week’s sales were, thus, limited to individual, random trades and the larger negotiations were postponed for the time being.

The kill: This week’s production stabilised at the low but usual level for February. The share of male hides is very low and the situation on the food market does not give the impression that people have become fully accustomed to the significantly higher prices. Still, we cannot see what could change in this situation in the next few weeks.

What we expect: The next few weeks will certainly bring big problems. The slaughter industry’s idea of getting significantly higher prices for the by-product will certainly meet with very strong resistance. It will not be possible to impose significantly higher prices on the global markets in the short term, and we, at least, consider it highly unlikely that the leather industry in Europe will have to pay significantly higher prices owing to a shortage of supplies. That would severely shake the credibility of the buyers. However, as is so often the case, the outcome is open.

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