Friedrich Sturm Report - 20.04.07

24/04/2007

What happened this week: Most of the interest this week was focused on Lineapelle, although a number of other leather-related shows were also taking place across the globe. Most of the raw material and leather producing community either went or had their eyes fixed on the fair in Bologna. Visitors reacted positively to the continuing interest for leather and the confirmation that

Italy

remains the global powerhouse for fashion trends and the development of new articles. Although there was nothing shockingly new as far as articles and styles are concerned, the indications we saw as early as last November have been confirmed.

First, in response to the sky-high prices for top quality calf and kips for aniline selections, there has clearly been a continued focus on a) the use of lower selections in patent leather and b) all types of artificial, fancy finishes and the substitution of calf by crossbreeds and goats or, in some cases, even lamb and sheep. This mainly applies to shoe production. In leather goods, which are mainly bags, the trend is not so strong as yet and here calf and kips are still holding their positions. Consequently, very light calfskins came under some quite heavy pressure on prices and, in view of the approaching summer, a number of suppliers had to bite the dust and lower prices by up to 10% to get the production up to the holidays placed.

The extra heavy hides continued to be another bleak spot and here the concerns we had been expressing for a while were confirmed. Although the problem does not affect everyone, it was pretty obvious that a number of suppliers across Europe had/have accumulated cured stocks and were now quietly trying to find a buyer for them. Sellers with stocks were very cautious about disclosing their situations as they were well aware that it could be a very expensive adventure if they had to take the prices some of the potential buyers were offering.

Upholstery is not having much fun, with the end of the season approaching and the news that one of the largest furniture producers in Europe (Schieder) has only been rescued in a last minute move by a group of banks. The main focus of general discussions has been the weak $, which is hurting almost every manufacturer in Europe in one way or another. Nobody can escape the currency issue and so minor corrections still need to be made, but demand from regular buyers remains constant and cleans production easily. Prices for the weight ranges between 15-40 kgs are still not fluctuating much and only minor currency-related corrections had to be made while sales have been fully sufficient taking the low kill into account. The week was not too bad for the hide grades again.

The kill: The kill was slightly better with colder temperatures and full working weeks. The most significant problem is the falling average weights. The erosion of selling prices and weights will require another price adjustment at the abattoirs next week.

What do we expect: There is no question that negative news is slowly increasing. So far, the fundamental need for raw material combined with the reduced slaughter is keeping things under control. However, one can see what can happen when the balance in the isolated segments changes. A stronger negative price trend is still being avoided by the restricted supply but, with the splits market in trouble, the weak $, the summer approaching and profitability of tanners problematical, the market remains in sharp control from the supply side and adjustments will continue. However, these will be limited as the average European hide is not expensive compared with other origins.

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	€ 1.60	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	€ 1.34	Correcting
Bulls	25/29.5 kg	27.5/28.5 kg	22/ 27 kg	25/26 kg	€ 1.75	Steady
	30/39.5 kg	36.0/37.0 kg	24/34 kg	31/33 kg	€ 1.68	Steady
	40/+ kg	45.0/48.0 kg	34/+ kg	38/40 kg	€ 1.50	Correcting
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 - 20.04.07 - leatherbiz: Lea

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Friedrich Sturm Report - 20.04.07