What happened this week: After the non-events of the last few weeks we saw some signs of a recovery this week, although it was a normal round of replenishment rather than a sign that things are performing much better. As already mentioned in the past few weeks a large gap can be seen between the situation in which different clients and different market segments find themselves. While top quality tanners are just suffering from a lack of selections available in the product mix, side leather tanners are still enjoying a decent order book, but don’t like their margin situation and we fail to see anything positive in the standard average upholstery sector. Although some are saying that the order situation is also good in this segment, we are not quite so sure about this.

Many European tanners we have talked to are reporting a decline in repeat orders and also a slow down in colour instructions and shipments and when business slows down in such a market it can become pretty critical for the cash-flow situation. In addition we have to consider that we are slowly entering into the seasonal end of the European production cycle in upholstery leather, so the fundamentals in this part of the world for this business sector are not essentially bright. But, in this segment of the market at least we can see few warning signs.

For the market as such it might not yet cause too much danger, because raw hides have not really piling up—apart from a few exceptions of course. The kill is low and the basic need of the industry is still moving enough of the mainstream products to avoid too many headaches for now and from the supply side this doesn’t look likely to change soon. However, there is no really clear picture.

 There appear to be a number of hides of all types spread around the pipeline and there is not a general stock in the pipeline, but blocks of material all around. There are heavy bulls in raw and wet blue still in producers hands, and wet blue stocks of various selections in tanners hands, to name but a few. This statement is countered by selected suppliers saying that they are very far sold-forward and they believe that these stocks which have been stranded in the pipeline will be absorbed and will not cause more than a possible loss for the present owner and no trouble for the market in general. The overall situation remains pretty foggy and the only general statement which remains undisputed is the fact that only a strong lift in leather prices would put tanners back on track as far as profitability is concerned.

The fact remains that there are still around 12 weeks to go until at least some seasonal reduction in leather production can weigh heavily on the shipments of hides. In the meantime, external effects such as a stock market collapse or other financial market events, cash flow problems, etc., will still be more of a determining factor than the simple question of supply and demand. Sales were normal and modest price concessions had to be made to keep the ball rolling. The weaker US$ has reduced euro revenues while in Europe incremental reductions were necessary for some the critical items.

The kill: Continues to stroll along. Neither up nor down and there is no sign that anything will change this in the short-term. Soon cattle will return to the fields and there is little reason why the beef demand should change. This leaves little room for any variation in the cattle kill in the weeks to come.

What do we expect?: This week has confirmed the mix of concern and confidence. Sales were good enough to confirm the fundamental demand and market rumours and stock markets were good enough to feed the concerns. So, the market remains trapped and it is unlikely that we will escape this trap in the next week. However, we continue to advise high alert so as to protect against surprises.

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