Tanners serving the upper market seem to lack a sufficient amount of orders to keep their production running in full. It may be that some have moved into the medium quality end price section which would explain, in part, the revival of activity in Northern Italy. The big question mark at this stage of the year is always how strong the winter production cycle for furniture leather is going to be. Raw material prices can’t actually be prohibitive as many hides around the world are hitting the very low end of the price cycle. Going against this theory are the rising costs of production and chemicals when, at the same time, nobody expects selling prices to be increased. So, what will suffer at the end of the day? The raw material will, at least in volume production, and there would need to be a massive revival of leather in fashion to convince the consumer to spend more for leather products.

This is not unrealistic, as we are already seeing a lot of niche markets where leather is appreciated and is receiving a fair valuation. However, from what one can analyse today, it seems that for many companies in the supply chain difficult times are ahead. Rising costs and few arguments as to why they can be passed on to the consumer are likely to lead to margin problems and deteriorating cash positions. Although hardly anyone expects it, if interest rates also go up in 2006 it could become an explosive mixture for the leather business.

Back to the present situation, in the last week hide prices mostly remained steady on the standard grades and tried to move up on light weights. Sales were almost exclusively executed in Europe this week and the Asian buyers moved their interest back to the USA where prices have returned to more economic levels, so our hides have lost some of their attraction.

The kill: Well we are now where we should be at this time of the year. The kill is about 20 % on average September levels and so supply is sufficient. One surprising factor is the lack of heifers in the slaughter mix, which is unusual for this time of the year. The nights are getting colder and wetter so we expect the kill to remain at decent levels for some time.

What do we expect? Next week the trade will meet in Bologna and we should get more solid answers to the market theories. The market still seems to be reasonably balanced, but sales and demand will have to pick up to absorb the additional hide quantities which can be expected over the next weeks due to the seasonal slaughter. If Bologna does not instil great confidence, we might see some difficulties for the standard types until the end of the year.

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