What happened this week: Slowly but surely people are realising that 2007 is starting to wind down. In most cases only a three-to-four-week period remains before production in Europe will shut down for one or, in some cases, even two weeks. With shipping plans in the Far East, and in China in particular, now also deeply influenced by the Chinese New Year break, a massive effort is needed to fulfil all the requirements for increased shipments by week 50, before business breaks until January.

This actually fits reasonably well with the holidays in Europe, but it creates tremendous pressure in terms of shipping, because vessels are full and a compressed volume of shipping within a short period of time is also always challenging. Anyway, it is certainly better to be busy at the moment and concerned about how to handle the volume rather than to be worried over where and how to move material.

With the continued turmoil in the financial markets, as stock markets fall and with the US$ almost in freefall, business hasn’t become any easier, but at the same time leather production has gained some speed as tanners need to purchase their raw material in order to fulfil their orders. But all this hasn’t helped the European market to recover yet. The higher seasonal kill all over Europe continues to guarantee sufficient supply and global uncertainties combined with the weaker US$ is supporting the nervous environment in which buyers are cautious and sellers are frightened. The biggest problem, however, remains that most hide types in Europe haven’t yet found a fair valuation base.

A number of odd offers are still circulating around the market and the large spreads between the different suppliers and origins haven’t closed yet either. With the present timing — the Christmas season ahead of us and the Chinese New Year following — buyers are happy to take things easy now. As usual the market trend will continue to feed itself — until it turns.

Despite all of the concerns mentioned above, trading this week was by no mean non-existent which confirmed that tanners are still in production and in need of raw material. A decent round of buying from regular customers also took place this week and what was most encouraging was the number of letter of credits coming at present, with buyers pushing for shipments. This means that the quality producers, at least, hold a decent order book and from the budgets we have seen so far for the first quarter there is no sign of any slow down in production as yet.

The prices obtained this week were pretty much US$-related. Prices in US$ held pretty well and levels were more or less stable. In euro terms this meant about a 1% decline for the export materials. Interest was once again mainly focused on dairy cows and low grades, while bulls in the range up to 30kg can hardly find any home at present, with abundant offers from everywhere and price indications from buyers far below market levels due to the competition from other origins. 

The kill: Still stable at higher seasonal levels. The slaughter mix is pretty much favouring females at the moment, which fits pretty well into the demand structure and is preventing rising inventory.

What do we expect: As long as we do not see any reduction in leather demand or production we have only limited worries. This is obviously making supply more important than demand at the moment. Due to the volatility in the financial markets and worries about the global economy a short-term market turn seems to be unlikely. However, declining supply and a firmer US$ could and would quickly change the parameters again. However, for the rest of 2007 we would be surprised if we saw any major changes.

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