Since the latest Market Intelligence two weeks ago, the macroeconomic picture has remained largely stable, with no significant interest rate changes or other developments to report.

Probably the only noteworthy occurrence was the further rise in the US dollar against the yen and the Euro - a factor which may reasonably be expected to enhance the competitiveness of manufacturers and exporters in non-US dollar areas.

Japan looks to be stuck firmly in the doldrums and has yet to show any sign of recovery. And with no let-up in the number of bankruptcy reports emanating from the country's retail sector, serious questions should now be asked about how vulnerable the Japanese banking system really is. To the surprise of no one - it was also reported that the European manufacturing sector suffered a further fall in output during November 2001.

The sales and financial reports issued by various leather-related manufacturers and retailers did little to shed any light on the wider situation. One thing they did confirm, however, was that products were leaving the shelves at a reasonable rate - even if this was attained at the expense of higher levels of discounting and lower-than-usual revenues. Perhaps the most reliable economic indicator during the period - and a positive sign in itself - was the slowdown in the rate of recovery forecasts issued by economists.

After a slow start following the holiday and New Year period, the leather pipeline is at last showing signs of serious activity.

Let us start with the major fairs that have taken place since the last Market Intelligence.

Before analysing each in turn, however, we can make one general statement that applies to them all - and that is that when it comes to making market observations, it is far better to look at what businesses are doing to improve their prospects on an individual basis, rather than the market situation as a whole.

This was especially true of the year's early round of shows. Though none of them could be described as being blisteringly good - and in several cases the mood was downright gloomy - there were nevertheless plenty of individual success stories to be had. Indeed, on many exhibition stands, the outlook was decidedly optimistic. At the very least, this confirms our previous hypothesis that the market has only just come back down to earth following the period of excess demand that prevailed during 1999-2000.

It also showed that the only businesses that gained during this market aberration were those that had the least to offer, as it was these that appeared to be suffering the most from the return to normality. There again, since those complaining always shout the loudest, general impressions may have be misleading!

Let us now take a quick look at some individual events.

First, we had a small show in Türkiye, offering mainly skins. Although only a local event, this nevertheless confirmed the continuing popularity of leather for apparel. The trend for lighter, smoother, finer and more elegant double face products was particularly evident - even against the backdrop of seasonal reducing volumes. Judging by levels of buyer interest, nappas will also once again be in vogue next season.

Those businesses that had experienced particular buyer interest in their designs and models said their outlook for the coming season was generally positive and that final orders and production would commence late February. The furniture Fair in Cologne, Germany, meanwhile was the biggest event of local importance, though here interpreting the various comments and reports made was much less straightforward.

Though most people had something to say about the-lower-than usual attendance levels and fewer orders were taken, there were more astute observations to be had for those with their ear to the ground. Visitor levels were well up on several stands and there was no shortage of new and more elegant designs to be seen. The quality of the leather also appeared to be improving with more well-made articles being noted than in previous years, as were flatter grains and less finishing. Several tanners producing higher quality leather said they were very pleased with the response to their new unveilings and that they were hopeful of orders being placed over the next few weeks.

The Pan American Leather Fair in Miami by comparison is a beast that is far less easy to describe. So let's not mince our words. Even walking at a moderate pace, it took not more than 10 minutes to take in all the exhibitor stands. So, as a general trade show for exhibitors looking for new customers, a 'disaster' might be a fair description.

But to be fair, we also met a few people who said they were happy with the event. Indeed, satisfaction was expressed by several high quality specialty tanners from the US and abroad who spoke of the fair's high quality attendance. They were also pleased at the level of orders being taken and the willingness of visitors to sample their products.

The shoe show in Lago di Garda (Italy) was far less talked about in industry circles, but having spoken to some visitors, it would appear that larger orders from European businesses were conspicuous by their absence. However, the underlying tone was positive, reflecting the mood of the industry as a whole. Prospects for the autumn/winter season are good, because leather remains in fashion.

Turning to the raw materials market, we can see that prices were steady in most markets at the beginning of the period and that they firmed up as time progressed. In the US especially, prices were pushed up quickly - again hinting at high sales numbers vs. a steady kill. Meanwhile, the rumour mill was in full swing, with stories circulating of certain suppliers being left with large inventories of mainly wet blue on their hands. Prices related to other origins traded in narrow ranges, but if there was any variation it was on the upside.

There were also reports of some larger individual sales of Brazilian hides to the Orient - a development that has lifted eventual market pressure there. Beef production remained steady in most parts of the world - the only exception being Australia where reduced export sales of beef delayed various abattoirs from getting back to normal production levels.

The firmer undertone - and this is probably the most important finding of the period - occurred with the Asians being just ahead of the holidays - a development which should have the effect of decreasing buying and shipping activity. Tanneries in this part of the world are said to operate at only a fraction of their production capacity and it is of no consequence if this is at 40%, 50% or 60 % of their total. Either way, output is well down - with a reluctance by mainly US customers to place finished product orders being the main culprit.

However, this begs the question - if the tanneries really are operating at such reduced levels, why is this not reflected in the raw materials statistics from that country. If any of our readers could offer us more information on this issue, we would be grateful to hear from them.

In Europe meanwhile the firmer trend was led by furniture upholstery and vegetable tanners. Here, the main gains were achieved on heavy cows and in the undervalued markets of the UK and Ireland. There was also strong demand for French raw materials for the vegetable tanning sector. All other items remained pretty steady and with poor business in Spain and not much more demand from shoe tanners in Italy, showing that the positive mood has yet to extend throughout the leather pipeline. A slightly better situation appears to be taking shape in the calfskin sector where demand is steadily improving - a fact which could in turn signal the return of the high end producers to a better or normalising situation.

Bovine garment tanners in Asia are still the ones that have yet to show any real signs of confidence - the result being that they have remained largely absent from the market. It is hard to believe that this segment is not going to see any improvement in the near future - a situation which we expect will favour the Chinese rather than the Korean tanning sector. On the sidelines meanwhile, we noticed a significant increase in the demand for splits with moderately rising prices.

Having now spent some time reviewing the market, let us now turn now to the question of where we stand in the leather supply cycle and where the market might take us next.

Thus far, the developments of the past few months have been normal and in line with our expectations. Raw material prices have levelled out and production in many segments continues to normalise. Companies who have done their homework and looked after their customers and business are taking good advantage of the present market conditions. In particular, they are benefiting from wider margins due to the reduced raw material costs. This applies mainly to the automotive tanners and producers of medium and higher end leather, who are obviously making hay while the sun shines.

It is a truism that where the trend is towards lower raw material prices, the consumption of higher quality leather rises. This is currently very much the situation in the furniture sector, where good quality leather is being used to stimulate consumer demand. Obviously, this has played right into the hands of the quality manufacturers who have the capability to produce the better leathers.

Produced leather items by contrast are far less reactive to the 'here and now' of the marketplace. This is because their production cycle is much more attuned the 'big picture' and longer-term trends such as general consumer demand and market confidence. A particular problem for this part of the market at the moment is the continuing timidity of the big retailers in placing their replenishment orders. With the financial trouble seen at the US retail chain K-Mart, it might still be too early to expect the US retail sector to lead this part of the market back to recovery. Indeed, suppliers must be hoping that K-Mart will find its way out of its current predicament as its disappearance would likely strengthen the positions of the remaining retailers in price discussions.

Nevertheless, given all the bad news from the USA, it is a miracle that the mass-produced sector has not been more badly hit. One is also left to wonder what is to be done with stockpile resulting from the cancelled and postponed orders we have seen over the last six months. According to some contacts, a sizeable dent has already been made in this by higher-than-normal demand from the Eastern bloc, plus a cold winter.

Since we do not dispose of any hard facts (and here we would ask our readers if they can assist) it is difficult to get a clear picture. But it is at least a fair assumption that these markets are increasingly influential and may in part be responsible for the consumption of the 'left overs.'

In conclusion, it is safe to say that in the short term, medium and better quality hides and leathers will continue to benefit from strong demand. Though steady price levels will prevail, we may see some upward manoeuvring. We would be surprised to see any sharp increases without speculation being involved, simply because total world business and confidence is not yet strong enough. Only a fool would follow the higher prices without first being assured of future sales.

The potential for price fluctuations is higher at the medium and lower end. If the order situation really is improving here, and Asian tanneries are returning to normal production levels, raw material supplies might once again tighten . However, we will have to wait until after the Chinese holidays to get a clearer idea of the direction in which this market is headed.

For quite some time now, we have been confident in saying that nothing serious on the upside is likely to happen. This is because a) the supply situation is appropriate to levels of demand and b) the downward pressure on prices continues to be enormous - given current levels of excess production capacity. At the very least, it would be fair to say that one would not have been mistaken to follow the purchasing strategy ideas set out in the previous Market Intelligence.