What happened this week: After a long period of indecision, the skies started to brighten a bit this week. There was not the avalanche of interest we had called for last week, but tanners finally started to accept that sellers are not willing to reduce their asking levels. Margins are squeezed so much that there is nothing to give and this time the convincing argument was that although various buyers tried to shop around for their preferred items - and in many cases every trick and strategy in the book was tried – this was all in vain as they failed to get the volume and prices they were looking for. This applied, in particular, to heavy cows and ox/heifers, but in sympathy with the rest of the market, bids on males were also unsuccessful.

There is still no reason to get over-excited, but a safe ground has definitely been established and the balance of power has – after a long time – moved slightly in favour of the sellers. This sentiment has already been growing for some time, but it seems that the trade fairs that have been held so far (shoe in Italy, leather and garment in Turkey and upholstery in Cologne) confirmed that leather and leather products are enjoying consumer interest, particularly in the markets with strong economic growth where consumers are shopping at levels that are more than sufficient to offset the still uncertain situation in Central Europe.

The one unresolved problem is still price. While almost all players admit that production volumes in 2005 were higher than expected and that the forecasts for 2006 lead to further optimism on the demand side, many continue to report that higher prices for leather are still unobtainable in the market. This Gordian knot will have to be unravelled eventually as this ongoing problem needs to be solved if raw material prices are to be adjusted to allow profitable calculations. The market has always sorted such issues out in the past and it will do so again this time. If the raw material market doesn’t move in the tanners’ favour they will probably have little option other than to fight their corner with the buyers and, if the consumer business is indeed better, then this should have some chance of success – in the same way as it did for chemical and energy suppliers.

The only question is how strong the preference for leather is as a product and how far this can go. As for hard facts on sales, this week was one of the better ones as far as volume was concerned. The key players were the Asian and Italian buyers for dairy cows and also some bulls. With insufficient heavy cows around some upholstery tanners have had to look for alternatives and can’t get around some of the males. Skins also performed well this week and there is no longer any need to mention the endless enquiries for material up to 15 kgs which cannot be satisfied.

The kill: The kill remained at the lower level carried over from the previous week. Some expect the slaughter to get better next week, and the real optimists are even expecting good numbers as a result of the reduced demand for poultry (due to Avian Flu) and a shift in demand in favour of beef. We have to admit that we have our doubts – at least in Germany – regarding this theory. There may be some movement in the fast food market, but as for the rest… 

What do we expect? Despite the improving situation and the solid ground the market has found, the momentum is still not strong enough to easily push things higher. Asian tanners will now start to wind down and the remainder will fight against higher asking levels. Currency is also an issue and so we believe that for the short term there will be a firmer sentiment, but no realistic chance for a sharp movement upwards.