What happened this week: Times are becoming a little more complicated–in Europe at least. The fundamental consensus of the trade has been quite optimistic after the strong demand and positive performance of the leather industry and the solid impression delivered over the past weeks. Nothing has changed, for the time being, except that the financial markets are probably starting to have more of an influence rather than the hide market itself. The steep fall of the US$ and the clear signs of further increases in interest rates around the globe (China also raised its rates this week) is never normally good news for business and for European suppliers, in particular, the sharp decline of the US$ is already hurting.

In the last two weeks the US$ has lost almost 4% of its value against the euro which converts to around €2 per hide on export revenue calculations. The raw material market has felt this right away without any time lag, but tanners will also start feel the burden quickly, especially those who are attending the Highpoint Fair in North Carolina at the moment. This might not change anything in terms of leather demand in the short-term, but it is going to weigh heavily on the competitiveness of the European tanners and will support competition from overseas. With the market pretty well sold-up at the moment nobody is paying too much attention to this as yet, but history says that macroeconomic factors always come into play eventually. So far everything that could be seen as negative for the leather sector has been ignored and the current strong demand is overruling all concerns.

Bulls were happy again when the USDA sales figures were published. Another week of very high figures once again confirmed the strong performance of the leather pipeline. In a way one could get the impression that tanners this year are buying all of the materials that they didn’t have the courage to book this time last year. However, sales and business were substantially reduced and whether this is the result of fewer hides being available or reduced demand remains to be seen. The majority of sales and business coming from Europe were programmes that had to be renewed and individual gaps that still needed to be filled. Extra heavy hides enjoyed most of the benefit from the present market, because tanners have realised that they can’t fight the trend, so the price reduction we have seen in view of the slowdown in demand from the automotive tanners has now been corrected again.

The rest of the market was again actively searching for bargains and enquiries for offers were more than plentiful. But, by the end of the week literally nothing was converted into any business. Price increases in Asia due to the currency situation remained unsuccessful and buyers seemed happy to escape for their Golden Week vacation rather than to bother about further purchases at higher prices. 

The kill: The kill was mainly steady and with no holiday this week and May Day next Monday slaughter was probably even a little better than expected. Next week will be short by a day again and this will reduce numbers.

What do we expect: Our concern last week about the influence of the currency market materialised much more quickly and in a more pronounced way than even we expected. But with very few hides to sell and most sellers well-positioned, there was little concern about the situation as yet. However, if the US market does not advance by at least 5% in the coming weeks, European standard hides will look pretty expensive and will struggle to find homes overseas. European customers will have to deal with tight supplies until their vacation, but they will also sense the headwinds from the currency market soon. Things are not going to be as easy now.