What happened this week: The hide market - or business in general - is no real challenge at the moment. Most of the activity relates to discussions with regular clients about their needs and ensuring that they have secure and consistent supplies. Since there is hardly any inventory left, most of the just-in-time deliveries have to be negotiated on the current kill and production. This is a real challenge as the kill and the composition of the grades delivers surprises on a weekly basis. Despite all of the concerns about the market, there are still enough fundamental requirements to clear up what is on offer at the moment and no hides on offer remain unsold. Although this is a positive situation, everyone can sense that European tanners are only buying what they still desperately need to cover themselves into their holidays, and not a single hide more, as having spoken with tanners, their faith in achieving sufficient increases in leather prices in the near future is pretty limited. It would be a bit too optimistic to expect them to admit otherwise as this would lead to the hope of higher raw material prices.

On the one hand we have seen less trading activity for several weeks, while on the other hand any interest shown in the hides on offer ended in a sale. However, when it comes to prices things are not that simple. Whilst abattoir prices have been rising incrementally for the last few months, returns have not been moving in the same manner. With the average weights falling and margins shrinking, it required much harder bargaining with clients to fight for an adequate selling price. In Asia higher prices from other overseas origins helped in lifting prices, however, it was like pulling teeth in price discussions in Europe. Tanners stubbornly repeated their margin problems in order to justify their unwillingness to add a few cents to the previous prices. And as usual the compromises that were made pleased nobody. Tanners cannot convert the higher raw material costs into higher leather prices and are also complaining about the deteriorating selections on offer. Meanwhile, suppliers are also suffering from the falling average weights and shrinking margins due to the insufficiently high selling prices.

This is nothing unusual in such a market. The only unusual aspect is that many players seem to have already forgotten that this is not uncommon in the leather pipeline. However, it’s not helping anyone at present and so the best course of action would be to get quickly into the summer holiday period and create a bit of relief from the stressed flow of product.

It will also be interesting to see if the football World Cup has any kind of influence on the leather business and market activity. Depending on the time zone a number of people will spend some time during office and production hours in front of the TV and the daily interest in production will shift focus a bit. The competition is only a week away.

The kill: A bit awkward at the moment. Due to the numerous holidays it’s impossible to get a clear picture, but the kill is shifting quickly between males and females and, on aggregate, it is better than one would expect. It may be that this is related to the upcoming World Cup with more tourists and retailers and restaurants becoming more optimistic about beef consumption. Next week is a short week again and the total weekly numbers will consequently not improve.

What do we expect: The market remains on a solid and firm footing and it seems that this will not change before the holiday season begins. At the same time tanners’ demand are now slowly declining as well as the US$ value, which is naturally limiting the market. This means that everything remains in the hands of the Asian buyers. Despite this, we still believe there will be a steady market with further falling activity.