What happened this week: Well, it was another week where one could basically copy the previous week’s report. The US$ continued its descent and is now nudging towards the next magic figure of 1.30 against the euro. And although everybody is now starting to discuss the possible effects of this, there is still not much concern thanks to the comfortable sales position for raw materials around the globe.

The trade weighted index of the US$ has lost more than 5% over the past few weeks and this will eventually affect global trade, and revenues in local currencies in many countries. As a result the rising concerns about future economic developments are starting to come to the foreground in discussions. Consequently the hide business was not really the focus of interest this week. There was not much trading and while the optimists say that this is due to the shortage of promptly available hides, the pessimists say that this is the beginning of the slow down which has been expected for a fairly long time now.

As far we are concerned both are right. On the one hand, the volumes to be able to test what would really happen if somebody put significant quantities into the market are not available, and it is also true that the buoyant demand of the past months - in particular from Asia –is no longer being seen.

So, the only trading that continued was filling the little holes and gaps that still exist across Europe. Asia was scared away for the time being by new asking levels due to the sharp drop in the US$. At present most European hides, including our own, have been priced out of the market and the gap between ourselves and the ‘others’ has become pretty wide. Except for a few bits and pieces – in particular for low grades – sales into Asia have dried up. Whether this is now the end of the rally or just a short-term break remains to be seen, as it has been expected for a while, and on several occasions people have claimed that the end had arrived, only for it not to happen. For the moment, however, it seems that the tide is beginning to ebb, but nothing more than that. Hides will remain scarce and there will be little pressure, because the low seasonal slaughter has begun and, as usual, it will be tough to just meet the basic demand of the European tanning industry in May/June.

Nobody would be surprised if the traditional and seasonal shortages of material cause problems for the regular fresh hide supplies in Europe in the weeks to come. One needs, however, to consider the time after July when today’s concerns may well become a reality—right in the middle of the holidays—when the new standards will be set for the third quarter or maybe even the rest of 2006. One way or the other it can’t work. If the demand for hides continues at the present pace, there will not be enough raw material to fill all of the drums but, if demand falls it will come at the wrong time of the year and this could make the trade pretty nervous. So, sales were limited and selected this week and prices were steady to incrementally higher.

The kill: The kill fell sharply this week. A lack of cattle to buy, lower demand for beef and reduced exports all hit the slaughter. For the hide trade the seasonally falling hide weights are now becoming an issue in calculations again. There is not much improvement to be expected.

What do we expect: The market is now caught between pressure from the currency market and the strained supply and availability situation. Buyers and sellers will try to use both for their own purpose but are likely to fail. For a major change we would need more of a market imbalance. However, the long-term fundamentals for the market have definitely deteriorated and we are now on high alert.