What happened this week: In our opinion, this week was neither good nor bad. Business was slower than it had been in previous weeks. Sales were more isolated than widespread. The US$ was again the key to many export sales and, when the timing was right, unattractive bids became workable for a short moment. For now, at least, it seems that some of the market enthusiasm is fading more and more. Only the lightweight material is continuing to find constant and strong demand and whatever becomes available and is offered, is bought almost instantly. Most other items are in a fair balance and are being supported by the sales position which has been built up thanks to the strong sales in September. Everything now points to a situation where most tanners are sufficiently covered for the coming weeks and are now waiting for the results of the trade shows, including the Fair in Bologna. Looking at the contracts and the shipping times, the next time stocks will need replenishing will be at the beginning of November, as long as sufficient leather orders are obtained in the meantime. One can sense a lot of uncertainty, particularly in the upholstery leather segment, and there are different opinions about the expectations for consumer business for the rest of 2005 and 2006.

In the meantime the media is debating the impact of higher petrol prices, higher interest rates and the price hike that has to be expected for oil-related materials in general. While consumer business in Asia and the USA still remains pretty robust and there is still some optimism, others who are looking further into the future see rising risks that inflation and higher costs for basic commodities could suddenly slow down private consumption sometime over the next three to six months. The most interesting question for us is how the industry is going to digest higher energy and material costs. There are only two options: increasing prices or absorbing the losses. If retailers and consumers continue to disappear when prices go up it means that reduced profits or even losses have to be expected – in combination with increased capital needs due to higher material and energy costs and higher interest rates in some parts of the world. Not really an inviting combination. So, if the negative outlook materialises it could be a difficult year to come for the industry.

This scenario would definitely hit the upholstery leather business more than side leather and perhaps recent months have already been an indication, as shoe and leathergoods seem to have performed much better than furniture and automotive. However, only time will tell and the atmosphere at the upcoming leather fair in Bologna will offer a strong indication of how the leather supply chain sees the near future.

The kill: Last week was a bit shortened by the holiday on Monday while this week was back to normal. The exceptionally warm weather is keeping cattle out in the fields for longer and farmers are not really rushing to market their cattle. However, slaughter levels remain at decent and steady levels and only the onset of some really cold nights might increase slaughter. The real seasonal autumn slaughter is history anyway, so we expect steady kills to continue for some time.  

What do we expect? We would be surprised to see too much activity next week. Some business might occur in Asia, but the European buyers will wait to see suppliers and customers during the fairs. With sufficient supply in the market at the moment and a fully satisfying order book, no great change can be expected until the trade meets up and gets a better insight the week after.