What happened this week: All eyes this week were focused on the ACLE fair in Shanghai. Those in Asia were busy handling their programmes and those staying at home were busy trying to figure out what was happening in the Orient. At the end it was a classic example of how dangerous trade shows can be when they take place at the wrong time. After the long summer break and the standstill in many markets, underlying tensions had already developed and would inevitably erupt sooner or later. So many travellers and visitors were excited to see a significant number of tanners in Asia still looking for material and, with standard suppliers being reasonably well cleaned up, it offered newcomers and traders the chance to stir the situation up. In such a market environment with such a pressured supply side an explosive mixture developed and, as the usual trade fair excitement spread around, a number of people were trying to use it to their own advantage. Looking at it from a distance the situation might be a little less exciting or at least less emotional. One has to accept the fact that leather business, in general, and side leather in particular, remains good. We also have to consider that upholstery tanning is no fun at the moment as in the mainstream products calculations can hardly be positive. Finished leather prices for upholstery are mostly insufficient and tanners are struggling to accept the raw material realities. As a result, lower quality and that from more economical origins has seen a sharp price increase in recent months while medium and higher quality (price) hides struggled to benefit from the situation. In the end, this was also the case in Asia.
Despite all the hype and enthusiasm, only cheaper materials could really benefit from the market situation while medium and higher priced origins struggled to gain significantly. All in all we would not be surprised if a lot more talking took place than trading. What was sold mostly went to regular buyers and it frequently took the full three days of the show to agree on price. Tanners continued to offer bids below asking levels and were finally forced to understand that, under the present circumstances, their regular suppliers would not be accepting the offers. Most buyers surrendered and asking prices were paid. Tests to push the market much higher failed, however, and the super optimists will have to wait some weeks if their dreams are to become a reality. One thing also became clear during the week in Asia: risk is rising and the imbalance between supply and demand needs to be sorted out, either by a slow down in leather demand or production cuts—voluntarily or forced. There is serious concern that we are heading towards some unhappy surprises in this business and it is more a question of ‘when’ rather than ‘if’.
At the end of the week, one should be happy with the knowledge of the decent leather demand for the next season, but it is difficult not to feel slightly uncomfortable about the potential consequences.
The kill: The kill has now reached normal and reasonable levels. Numbers are acceptable for this time of year although weights could be somewhat better. There is no reason to expect any major change in the weeks to come.
What do we expect: In the coming week, the market has to digest the situation and most likely returning home and settling back into a routine will take some of the heat from the market again. Demand is outstripping supply at the moment and the extent to which this will be converted into higher prices remains to be seen. The short term market remains on steady to firm ground but tensions are rising.
