Friedrich Sturm Report - 06.10.06

10/10/2006

What happened this week: The week was a slow one as almost everyone expected it to be. This was not really surprising with the holiday on Tuesday and the majority of Asia also taking almost a week-long break. Although the concerns voiced in several of our reports after the summer holidays may have appeared a little premature, there may be some more signs that changes are starting to occur. Despite the holiday break there are clear signs that the tanning industry is becoming more resistant to present price levels. Whatever the final effect of the Chinese customs policy is, we now have import duties imposed by the EU on Chinese and Vietnamese shoes and, in combination with insufficient margins, the puzzle is coming together piece by piece to take some of the market dynamics away. Sellers’ enthusiasm, which had been triggered during the show in Shanghai, in combination with the existing temporary shortage in some of the global hide categories, had made a number of market players blind in at least one eye. The fundamental scepticism which we had expressed here and there did not generate too many fans. And indeed the fundamentals did not support any concerns. It may still be too early to raise many eyebrows, because the market balance still does not justify a market drop but, ‘reading between the lines’ in daily conversations, it seems that the number of pundits considering anything other than the common trend is starting to grow. This applies at least to the hide and tanning industry, but has certainly not yet reached the abattoir doors. The key to the market development for the rest of the year definitely lies in the final impressions obtained from the substantial number of trade fairs up to the end of October.

We do not need any confirmation that isolated market segments are still doing quite well; what the market requires is a clear indication regarding the mainstream markets and price trends for leather. In addition, the inventory position of the global players and their ability to stay absent from the market for a while is certainly having a major impact on the next market move. Trading during the week was again reasonably light. It was still enough to erase any short term concerns, but the lack of enthusiasm is still there. Prices remain around asking levels and male hides in particular are still benefiting from the low slaughter in September. Regular cow buyers from

Italy

and Asia remained almost absent for price and holiday reasons.

The kill: Temperatures are now falling and it seems that the long hot summer has finally come to an end and we have to prepare ourselves for autumn. Despite the holiday on Tuesday the daily slaughter numbers in most of the large abattoirs are certainly picking up now. So it seems that we can now start to expect the seasonal increase in the slaughter for the next eight to ten weeks. There is still no significant reflection on hide weights, but it should be just a matter of time until this can be seen as well.

What do we expect: There is definitely no reason to predict a market turnaround yet. It would come as a surprise if there was any upside potential for the next weeks. The next strong market indicator is going to be Lineapelle in Bologna in two weeks. After that, the trade should be in a position to judge the price trend for the rest of the year. We would not be surprised if economic realities now returned to the foreground and a moderate settlement of some hide categories could be seen more as we enter the dark season of the year.

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	€ 1.77	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	€ 1.50	Steady
	30/+ kg	33.5/35.5 kg	27/+ kg	29/31 kg	€ 1.42	Steady
Bulls	25/29.5 kg	27.5/28.5 kg	22/ 27 kg	25/26 kg	€ 1.65	Steady
	30/39.5 kg	36.0/37.0 kg	24/34 kg	31/33 kg	€ 1.65	Steady
	40/+ kg	45.0/48.0 kg	34/+ kg	38/40 kg	€ 1.55	Steady
Thirds	15/+ kg	25.0/27.5 kg	13/+ kg	24/26 kg	€ 1.25	Steady
Thirds bulls	30/+ kg	38.0/40.0 kg	24/+ kg	33/36 kg	€ 1.25	Steady

Friedrich Sturm Report - 06.10.06 - leatherbiz: Lea

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Friedrich Sturm Report - 06.10.06