Friedrich Sturm Report - 01.09.06

05/09/2006

What happened this week: If any doubts remained over the positive leather demand situation, activity during the last week swept them all away. Business activity increased significantly and European tanners in particular had to make their needs for raw materials known to their suppliers. Inventories are simply too low and need to be replenished in the coming weeks. Side leather tanners are enjoying a particularly strong and demanding order book and need to secure raw material supply to meet their commitments. The situation is probably similar for upholstery suppliers, but their calculations may be even more problematic. Therefore, they are still trying to defend against the market and have not yet given up hope that the market will swing round to fulfil the hopes they had at the start of the holidays. European tanners do not have much time left to decide how to handle their procurement situation. Time is now against them and a number had to make decisions and make arrangements with suppliers which were mainly in favour of the suppliers.

So, most business was concluded in Europe and all interest from Asia this week was for males or heifers in the attempt to avoid the USA’s high prices. Interest for cows was shown but, since this type of leather is mainly used by upholstery and garment tanners, the enthusiasm was much less pronounced and price negotiations much more complicated. The volume of business in this segment was consequently much lower. However, nobody is really concerned because the inventory situation is not yet putting anyone under pressure to sell. So optimism was spread among sellers this week and any potential concern about prices and sales after the holidays were more or less erased.

However, even with some marginal advances on male hides there is still little price reaction in the market. European sellers still lack the courage to raise asking prices by any significant amount and the most impressive situation is the price level lower quality hides can obtain today. The tanners’ desperate search for cheaper raw material has lifted lower quality origins and grades to price levels that are difficult to justify.

This leads us to question whether leather prices will also move higher to justify present price levels, or even further increases, in the coming weeks. Despite the strong demand, the economic situation for most tanners is not working out well. In the coming week we will finally find out about the position of the Asian and, more specifically, the Chinese leather industry. The year-long discussion about customs books and the position of the Chinese leather industry should start to produce some answers. Prices during the week were more or less stable for cows, while bulls and ox/heifers were able to make some limited progress. However, a real and fundamental change is still nowhere to be seen.

The kill: The weather was as perfect until the beginning of August as it has been lousy ever since. Rain and low temperatures have supported the kill and this also rose again this week. So, after the disaster situation in July we are now back to normal with good production in northern Germany. School holidays continue in the south and the kill remains low.

What do we expect: Next week everyone will be waiting for the outcome of the Asian trips and the news about the leather business from there. Suppliers will not be flexible in their offerings and if interest from Asia is promising this will encourage sellers to test the market with higher prices again. Outcome remains to be seen.

Type	Weight range	Avg. green weight	Salted weight	Avg. weight salted	Price per kg green weight	Trend
Ox/heifers	15/24.5 kg	22.0/23.5 kg	13/22 kg	20/21 kg	€ 1.75	Steady
	25/29.5 kg	27.5/28.5 kg	22/27 kg	25/26 kg	€ 1.53	Steady
Dairy cows	15/24.5 kg	22.5/23.5 kg	13/22 kg	20/21 kg	€ 1.65	Steady
	25/29.5 kg	27.5/28.5 kg	22/27 kg	25/26 kg	€ 1.45	Steady
	30/+ kg	33.5/35.5 kg	27/+ kg	29/31 kg	€ 1.35	Steady
Bulls	25/29.5 kg	27.5/28.5 kg	22/ 27 kg	25/26 kg	€ 1.62	Steady
	30/39.5 kg	36.0/37.0 kg	24/34 kg	31/33 kg	€ 1.60	Firmish
	40/+ kg	45.0/48.0 kg	34/+ kg	38/40 kg	€ 1.51	Firmish
Thirds	15/+ kg	25.0/27.5 kg	13/+ kg	24/26 kg	€ 1.20	Steady
Thirds bulls	30/+ kg	38.0/40.0 kg	24/+ kg	33/36 kg	€ 1.20	Firmish

Friedrich Sturm Report - 01.09.06 - leatherbiz: Lea

Intelligence

Friedrich Sturm Report - 01.09.06