What happened this week: The same old story—when the headlines tell you where the market is going, expect the exact opposite. This is what has happened this time with the US$ exchange rate. ‘Europhoria’ came to an abrupt stop when all of the media began to predict a swift break from the €1.30 mark and a continued steep fall. For the moment, at least, the market seems to have paused and settled down. This, however, did not make much difference to the hide market during the week. The lack of disposable material still dominates and the shortfall, predominantly in the slaughter of male cattle, is creating the traditional delivery bottlenecks. The seasonal decline caused by reduced consumption and the holidays are reducing the kill more than the demand. Consequently, managing deliveries at present is more challenging than selling. Despite the fact that this sounds rather bullish for the hide market, it has to be considered that weekly demand has definitely declined. All in all, it now seems that there will be some kind of break over the summer. Although it is still too early to make a final judgement, there is no serious threat expected in the coming 4-6 weeks

Whatever is available within this time frame is still required, not to speak of the short-term bottlenecks in male material. As we progress further into the summer the question as to what the level of demand for hides and leather will be from September onwards has to be asked. Talking to customers around the globe, hardly anyone is really complaining about leather demand at present, while almost everybody is moaning about profitability. Shoe leather tanners are remaining positive for the second half of 2006 while others are not really willing to take a position for the season to come.

With most new upholstery leather orders only negotiated from September onwards, there is still quite some time to go before we will see what the relation between leather prices will be for the season to come. If normal market logic applies, we will see more concern and a slowdown for the next 8-12 weeks and this could last a pretty long time. The good thing, however, remains that there is a clear impression that raw material prices will settle back to allow the tanners an acceptable level of calculation, leather demand will remain decent and business should stay reasonable for the rest of the year. As usual the most important issue is to keep the volatility in the market as low as possible.

Sales were sporadic throughout the week. For the first half demand from Europe dominated while in the second half, with the slightly firmer US$, some sales to the Orient were possible. Almost all of the business focused on cows and low grades. This was due to demand, and also due to the lack of supply of any other categories.

The kill: The kill remains at the seasonally lower levels. The noticeable fact is, however, the ratio between males and females which is seeing more cows and only a few bulls, which is a bit strange for the time of the year. The coming week will again be interrupted by a holiday on Thursday which is going to weigh heavily on production numbers.

What do we expect: The market is not yet ripe for a major move. The cow markets are starting, however, to look a bit vulnerable while the bulls are on safe ground thanks to the very low slaughter and the steady production needs of the industry. This should compensate in the short-term. For the longer term we think that the market is going to run out of steam.