What happened this week: The week represented another small step into normality as interest became more regular and sales for dairy cows were concluded with a number of regular clients. The week also brought good news from the currency market and offered clearer judgement on the successfulness of sales. However, on the whole, selling prices are still unsatisfying despite some of the massive price pressure seen in the last weeks of 2004 having been lifted and buyers no longer consider bidding the market down. Some in the trade – mainly hide suppliers – are gaining confidence for a market turnaround but their only argument is the lower kill of the first January week. So far tanners seem unimpressed by the reports about slaughter, something one should have learned from 2004. The tanning industry today is much more in the position to substitute its sources and, with little prospect for rising leather prices until next season, the disposition of the tanning industry to pay more for their raw materials seems very unlikely. Only a real global shortage of raw material could change this attitude. So far the leather market and prices are the dominating factors and the hide market has remained pretty unimpressed by most of the changes on the supply side. Without a recovery in leather prices we find it difficult in the short term to foresee any potential for a significant increase in raw material values. Little news from the tanning industry is coming in at the moment. Shoe and better quality leathers still seem to be in reasonable demand, while upholstery is failing to produce much positive news with prices behind the problem. One could be under the impression that 2005 is not really going to change very much in the leather business. The fundamentals remain the same and the focus, at least for the European beef and hide industry, will shift closer to the changes in this part of the pipeline. The restructuring, which started in 2004, is accelerating now and will alter many of the traditional structures. It will not, however, affect the global industry or the movement of markets as much. The industrialisation of the industry with larger and more specialised productions will certainly change more than other factors. In the short term we believe the decisive point for the business is going to be the inventory and order situation of the Asian furniture tanners. Whatever the situation, it will come to the surface in the next 4-6 weeks and will guide us until spring/early summer. The kill: The production shock of the first week eased slightly in the second. The kill returned to more realistic levels although it is still well below normal ranges with plants remaining closed for days. It will still take at least another week to refill the pipeline of fresh hides to a normal level. It seems that the kill is going to remain steady for the forthcoming weeks and we just have to get used to a lower supply. What do we expect? We think that next week market activity will continue to normalise. Several Asian tanners are expected to take some purchasing decisions and the Mediterranean tanning industry is also due to show up for business. We doubt this will have much effect on prices but the downward pressure with the present dollar exchange rate is gone and stability has been regained. Higher prices, therefore, seem unlikely at this stage.

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