What happened this week: The week was completely focused on the show in Bologna, but anyone expecting breaking news or a big change in the current trends was disappointed.

As one expected, market opinions drifted apart but the vast majority of visitors accepted the fact that the fundamental pressure on raw material prices has still not faded. The market correction was mainly related to currency matters, cash-flow problems, the rise in the cost of production, etc., although this has, in the main, been cushioned by a decline in raw material prices. What is different now compared to the situation in the past is the fact that the market decline is not being caused by a general fall in demand for leather or leather goods. Therefore very few are complaining about a lack of orders, but almost everyone is grumbling about profitability at the moment. This situation was sharply illustrated by the bankruptcy of a large, well-known tanner in south of Italy. Although it was a skin tanner, and may have been facing its own problems, it has been viewed as a clear reflection of how quickly things can happen, pretty much out of the blue.

In Bologna, one certainly felt that a number of visitors were not feeling particularly comfortable and were evaluating their risk in the current situation. No really new fashion trends were seen, boots are still everywhere for ladies, and there were a lot of classy articles with the traditional Italian focus on fashion and style. Some patent leather as well as prints and combinations are also still around.

In terms of materials, extra small calfskins were pretty much corrected again after having reached excessive levels in the first quarter and they have been substituted by cheaper and more economical articles. This always leaves only the real ‘expert producers’ in this market which will deflate demand and let the market return to the minimum levels of the cycle. For cattle hides the situation was a bit more complicated with the spread between various markets and grades pretty wide. European origins (e.g. UK/Ireland, France) which were focused on the Italian markets, faced strong headwinds which eventually paved the way for further downward price corrections, but this was more for those who couldn’t escape into other markets through alternative materials or for their faithful long-term customer base. This shook prices up a bit, however, in spite of this business wasn’t entirely bad. The fundamental fact that cheap material is still in short supply while medium/higher qualities are in sufficient supply remains unchanged and this was also reflected in the closing price gap between the selections.

Another subject of discussion at the fair was the rumours about trading deals in Italy which companies are using to ‘limit’ VAT payments. As long as the system isn’t discovered and no-one is prosecuted by the authorities there is a nice 20% to be shared between the ‘interested’ parties. This is, of course, only gossip until it is proved and whether it really is happening to any significant extent is still not known. Sales were just steady. Prices for bulls fell moderately again and cows also suffered a fraction due to the record low of the US$. Low grades also had to adjust according to the market trend despite pretty good demand.

The kill: With the nights getting colder the kill is starting to rise moderately. The number of cows, in particular, was up while we were not really impressed by the slaughter of males. Weights are rising which can only be good news.

What do we expect:  A heavy slaughter in some areas of Europe and the weak US$ will maintain a certain pressure on the market. However, the worst should be over, although the final roll out could still last until November when the correction phase should finally be sorted out. Enough hides should now be sold to keep price pressure under control. Payment and financial issues could, however, still be a negative issue.

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