What happened this week: Most of last week’s report could simply be copied into this one. Market activity was very slow indeed, yet it has to be said that the number of hides eventually sold was substantially higher than expected. Most of the sales have been made to overseas destinations where the weaker US dollar weighed heavily on export prices. No matter how one is rating the market activity one thing remains the focus of interest and that is the price. Most of the interest was once again on all the cheap things on offer. Some normal dairy cows were added where prices have not really changed in dollar terms for almost 2-3 months (i.e. in the Orient) and only the exchange rate is influencing the euro revenue. Some specialty products were added and rounded the week up. In Europe business is like pulling teeth. Tanners in general are in a pretty poor mood and complain either about the business or about the poor start to the New Year that raised worries over leather prices and quality requests even from those who reported good business and acceptable margins last year. The rising cost of chemicals and energy and the increasing price pressure caused by high competition, even in the niche markets, managed to dampen the mood across the industry. Business has been tough for some time already but now even the best performing operations in Europe are facing strong headwinds. This applies to the hide processing industry too. Structural changes and expectations of lower kills in the future have changed the moods quickly and given butchers the ground to play hard, which means abattoir prices are on levels far too high to reflect the present market situation for continental European cattle hides. With the increasing price pressure on finished leather and the rising substitution of continental European hides by cheaper origins, margins are squeezed and prices in many cases do not reflect the true value of the hides. Payment attitudes are no longer reasonable and rumour has it that market claims are circulating the trade - all in all, not a very positive or exciting environment for February. To find something positive one must stop once again at light weight calf and kips which are enjoying a fashion-driven revival. Although many tanners are still in the sampling stage it seems that one can remain optimistic this season and fashion shows are confirming the trend. It has to be said that the shoe business globally seems to have a much brighter outlook than any of the other market segments.

The kill: Nothing new, nothing special. Weights are too light for the time of the year with cattle slaughtered when not yet market ready. Slaughter statistics released for December and the entire 2004 confirm the high numbers with a whopping increase of 21 % for December and 3.6 % for the entire year 2004. The total kill was just above 3.7 million and a drop of 5-10% from these levels should not come as surprise in 2005.

What do we expect? Next week the Asian tanners should all be back at their desks. This will finally give us the indications as to what extend they might return to the market. In general, we still do not expect that any market momentum could drive prices significantly up or down and it will be a huge struggle to convince tanners that a price increase is needed to cover processing costs.