Friedrich Sturm Report - 04.11.05

07/11/2005

What happened this week: The week after Bologna was reasonably quiet. The holiday on Tuesday in most Catholic parts of the world and the Muslim holidays kept matters pretty much under control and market activity was, in our case, subdued. One can also easily sense that most of the market players are still seeking a clear direction. Many have the feeling that the long period of market stability could be coming to an end although everyone has a different interpretation and, as a consequence, a different opinion as to where prices could be heading.

Some sellers are gaining optimism from the isolated market segments where supply is not sufficient and prices have already moved up. Others feel that the FMD (Foot and Mouth Disease) in Brazil has finally created a floor and will bring supply issues back to the foreground again. Last but not least some are simply optimistic about the consumer business in leather articles and are expecting strong demand for raw material over the coming months, because tanners’ inventories do not seem to be sufficient. Well, it comes as no surprise that most of these arguments are coming from market players who do not fancy a continuation of the price stability seen for more than a year now. And, although it has been mentioned many times before, those who felt that the raw material market was going to be under buyers’ control forever must be reminded that this is, and will not be, case.

Assuming that the raw material market moves upwards in the months ahead, it is less the fact of this happening, but rather the consequences of this that would be worrying. Leather prices, in most cases, have already been locked in for the coming season. Interest rates, production and transport charges are rising at the same time and if raw material costs followed, this would squeeze the cash flow positions in the tanning industry - which never has a good outcome. This is still all theory and looking at the market activity of the week not much really underlines the bull market phantom yet. Except for isolated materials which have been mentioned repeatedly, business volume is not impressive enough to believe that this could be the basis for a significant price increase. For Europeans, at least, the market has almost been operating without the Asian buyers since the beginning of September and this is never enough to drive prices up.

If one really wants to see an argument for a move, one could talk about the currency factor again with the US$ breaking the long term barrier of $1.1870 vs. the euro, which could open the door for further gains with a reflection in € prices. However, it always requires adequate raw material demand and sales to be converted. The sales activity this week was limited and only isolated trades were generated. A bit of interest in heavier weights was seen from Asia while Europe remained quiet with bids only being placed on traditional hide types. Light weights remain in focus and interest for low grade bulls was also remarkable, but not yet at an acceptable level. Most of the other isolated bids were at, or slightly below, asking levels.

The kill: The kill is exactly what it should be - high, steady, and with the same outlook for some time. Weights are not yet what they should be, but it might still be too early in the season.

What do we expect? We expect very little indeed. The interesting questions for the weeks to come will be answered by the Asian buyers when they return to the European market. If they focus entirely on the low price segment - as they have now for a while - it will push them back in their attempt to gain more market share in the upholstery segment. This would be good news for the European tanners for the rest of this furniture season.

Type	Weight range	Avg. green weight	Salted weight	Avg. weight salted	Price per kg green weight	Trend
Ox/heifers	15/24.5 kg	22.0/23.5 kg	13/22 kg	20/21 kg	€ 1.55	Steady
	25/29.5 kg	27.5/28.5 kg	22/27 kg	25/26 kg	€ 1.35	Steady
Dairy cows	15/24.5 kg	22.5/23.5 kg	13/22 kg	20/21 kg	€ 1.50	Steady
	25/29.5 kg	27.5/28.5 kg	22/27 kg	25/26 kg	€ 1.30	Steady
	30/+ kg	33.5/35.5 kg	27/+ kg	29/31 kg	€ 1.16	Steady
Bulls	25/29.5 kg	27.5/28.5 kg	22/ 27 kg	25/26 kg	€ 1.62	Steady
	30/39.5 kg	36.0/37.0 kg	24/34 kg	31/33 kg	€ 1.52	Steady
	40/+ kg	45.0/48.0 kg	34/+ kg	38/40 kg	€ 1.44	Steady
Thirds	15/+ kg	25.0/27.5 kg	13/+ kg	24/26 kg	€ 1.10	Steady
Thirds bulls	30/+ kg	38.0/40.0 kg	24/+ kg	33/36 kg	€ 1.10	Steady

Friedrich Sturm Report - 04.11.05 - leatherbiz: Lea

Intelligence

Friedrich Sturm Report - 04.11.05