Friedrich Sturm Report - 21.09.07
What happened this week: The past week has been pretty quiet, with most people busy trying to understand and to analyse the market. While there is little dispute about the present situation, opinions about the future of the market are still pretty mixed. For the moment the market is in the typical September doldrums. Everyone should know by now that most of September is the low season for raw material activity, but it seems still to surprise the majority of the market participants. This is surprising, but in this trade memories are traditionally pretty short.
All the activity in Shanghai right after the summer holidays is frequently misleading. The rest of the world is sorting itself out waiting for the results of the fairs, the initial discussions with their clients, weather or whatever else one has to take into account for a fair evaluation of the market trend. While it is difficult, even in normal years, all the turbulence on the financial market has added to the uncertainty this year and this has led to an even more cautious position on both sides of the table. And, so far, little has changed.
Sales this week were nothing brilliant, but not too depressing either. The slump in the value of the US dollar made calculations difficult, and in some cases the shortfalls couldn’t be fully compensated in prices. The biggest problem at the moment is not only the problem of euro returns for raw material, but also the double effect for exporting tanners. Not only is the raw material market difficult, but also, as far as manufacturing costs are concerned, the currency trend is getting more problematic for leather producers.
Imports are getting cheaper and export prices are increasingly less competitive. For many the short-term solution means buying more raw or even better semi-finished material to protect against the trend. With the euro breaking the $1.40 mark and reaching new historical highs without much resistance, leaves also the potential risk for further declines and increasing the problem for the season to come.
On the other side of the coin the volume of leather orders is still reasonable and the first reports from the fairs in Düsseldorf (GDS) and Paris (Le Cuir á Paris) haven’t been at all negative.
Hide prices this week were a fraction lower than the week before. Most of the market talk was round the situation of heavy—mainly male—hides. One cannot hide from the fact, that we have a two-tier market with salted hides still looking for homes and a fresh, chilled market almost steady. Sellers and buyers are still trying to use this situation for their own benefit, but it doesn’t seem that either side is making too much progress so far.
The kill: The kill fell back a bit in the last week. Nothing serious, but the rise has come to a stop. Weights continue to be normal.
What we expect: Unless the financial markets deliver a big surprise everything seems certain to remain stuck until the next ‘get together’ in Bologna. It seems that buyers and sellers are not willing to move much at the moment. Day-to-day business is going to continue as normal, but if anyone is in a stronger position it is the buyers. However, with limited stocks in most tanneries and prices well corrected, things could also turn around eventually.
