What happened this week: The week turned out to be less exciting than the ones before. There was still a little overhanging interest from the previous week and some tanners were still actively trying to secure more hides at price levels from a week ago and the end results were mixed. Half of the buyers decided to step out of the market and to wait for better times to come, while others moved bids higher by fractions of a cent to see where the seller was willing to bite. At the end of the day the new asking levels were not met and one had to decide whether to take the business as it was offered or leave it. As a result the market lost some of its momentum although it is evident that there is still a fair amount of leather business around and, although many tanners are finding a lot to complain about, the volume of orders they are carrying on their books and those they are still receiving is not one of them.

At the end of the day this is a classical situation in the supply chain. With raw material prices not having shown any decline in price over the last few weeks, tanners and leather buyers are now trying to cover as much business as possible by the end of the season under unchanged conditions so as not to risk losing out. This also now evidently applies to leather buyers who are starting to realise that the times where the buyer always had the upper hand and always found somebody to meet his price and quality targets may be over—temporarily at least.

The situation might change and as tanners margins are squeezed more than ever, many are starting to consider the option of cutting production rather than entering into a hopeless order position which will eventually lead to them losing money. We have seen this reaction before, in particular from Asian tanners who quickly escape when it comes to unprofitable leather orders. At present most are still finishing their existing order books and that’s what the demand is for but, when it comes to new deals, buyers will have to be prepared for either higher leather prices or less offer to choose from – at least this is our interpretation of it. This also explains why leather buyers are playing tricks to get their suppliers to extend existing orders at same terms and conditions. In the meantime everybody is running around the markets like bloodhounds sniffing at every door in an attempt to find adequately priced materials. If unsuccessful lower quality materials are also being used so as not to break the price targets and risk the budget. If this strategy will be successful is somewhat questionable.

Having said all that, it is also true that most of the demand must have been satisfied and only some latecomers and gamblers will enter the market aggressively at this stage. It is more likely that most are now going to use up what they have and than wait to see how things progress. This might exclude some European tanners who carry much less long term inventory than the Asians.

The kill:  Nothing really interesting. We did not detect any major change in the slaughter due to bird flu, and the carnival this week had a much smaller influence than expected. For the coming weeks things should stay unchanged.

What do we expect? We have no reason to change our present outlook. There is good reason to believe that the Asian tanners are now losing their will to push the market any further and they will most likely wait for their suppliers to visit them over the next weeks before making their next move. The ball is now more in the European tanners’ court when it comes to making decisions, because they haven’t really taken part in recent market activity. All in all, it looks like we have a temporary pause before new directions are taken. Prices should therefore remain on solid ground and steady, although a weaker US$ would absorb also some ambition.