Friedrich Sturm Report - 05.01.07

07/02/2007

What happened this week: Reading the various international reports, talking to a number of people from around the globe and analysing the situation and the activity in Europe, we have to conclude that opinions and sentiments are drifting further and further apart. The market in the

USA

—as it is reported and described—is not showing any signs of fatigue and our impression is that nobody is expecting any major decline at all this year. Each week there is a new Asian market in combination with the forward position which keeps the sellers in the driver’s seat and the market firm. Providing this is an accurate deduction, the other markets should not have too much cause for concern as the price levels paid in the

will protect other markets including our own. Without this protection things would not be so bright over here. The low kill has been covering up the fact that resistance against the price levels in Europe is growing daily. The vast majority of tanners have made their calculations and figured out that the high prices and the selections that are below standard are weighing on calculations even more than they had expected. The same old story prevails that there has to be a certain level of pain before any decisions are made.

The need for fresh hides and the low kill has not permitted any accumulation of salted inventories with the exception of some neighbouring countries. What cannot be absorbed in the extra heavies is—as in previous years—stacked in wet blue by some of the processors with contract tanning or tanning facilities. The expectation is that the surplus is only temporary and the declining kill in spring, in combination with the lower kill, will allow the sale of the merchandise as it did in 2006. In the meantime, many tanning areas in Europe are reporting reduced activity. The optimists consider this to be a seasonal matter, while the pessimists believe that, in Europe at least, it could be the start of a declining demand for leather and/or production. Ultimately, no matter who is right, the fact of the matter is that the European market has been losing a lot of momentum since December. As long as this can be absorbed by the Asian buyers there is no problem but, as in the example of the extra heavies where there is no way that all the hides can find homes at present, one has to accept that the market conditions would be different without the overseas support. This would be less important if there were not a number of suppliers fully focused on the European customer base and, if they can not move product in the volumes to which they have been accustomed for some time, the gap in prices between Europe (fresh) and overseas (salted) could widen quickly. It is certainly too soon to tell at present, but the high priced and extra heavy materials will certainly find the market conditions more difficult in the near future.

The kill: There is still no change here. The kill is low and the ratio between males and females is still not really favouring the bulls. With the carnival season still ahead of us we must accept that there will be little change until at least the second half of February.

What do we expect: Whether we like it or not, the situation is no longer as straightforward as it has been for a long time. The supply and demand fundamentals are still not allowing any market change, but the sentiment, at least in Europe, is not the same as it used to be. Resistance is building and, although it may still not be strong enough to break the price trend, the level of uncertainty is rising. A small adjustment could have a big impact.

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	€ 1.80	Steady
	25/29.5 kg	27.5/28.5 kg	22/27 kg	25/26 kg	€ 1.60	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	€ 1.40	Settling
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	€ 1.70	Steady
	40/+ kg	45.0/48.0 kg	34/+ kg	38/40 kg	€ 1.58	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 - 05.01.07 - leatherbiz: Lea

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Friedrich Sturm Report - 05.01.07