What happened this week: First of all we would like to wish all of our readers and business associates a very happy, healthy and prosperous 2008.

It is no surprise that, basically, we could have missed this week’s report, too, as apart from the normal busy administration work associated with the end of the fiscal year, very little trading activity was seen in the first week of the New Year.  Looking back to our last report of 2007 when tailwinds from the currency markets were having an effect, this trend has quickly reversed right after Christmas and we closed this week not far off the lows we saw at the beginning of December, which meant that quite a bit of the enthusiasm about the start of the New Year quickly faded.

Many of the calculations that looked a little more attractive for overseas business just before Christmas now look as lousy as ever and most of the hopes for some better calculations were quickly dashed as soon as the New Year opened its doors. So, all that is left for the optimists now, in the short-term, is the expectation of a lower kill in the weeks to come. With so little news to work with, it is obviously very difficult to get a picture of the likely activity in the weeks to come.  While on the one hand there is very little reason to believe that business should not just continue as normal, there are still a few unanswered questions. For example, it will be quite interesting to see if the Asian buyers are willing to book further contracts and shipments prior to their New Year celebrations, or if they have already satisfied their needs and can wait until they return from their holidays. Another question is obviously how the European tanning industry is going to cope with the ongoing challenge of a strong euro in 2008. All of these unknowns still leave plenty of room for speculation and many arguments for both sides.

While tanners are convinced that the negatives are a clear signal of further declines, butchers are convinced that the lower kill will strengthen their position and create better returns pretty soon. Looking at the global price structure most of our hides are fairly and adequately priced and it is only medium-weight bull hides that are unable to compete at international levels. So, apart from an adjustment in this section, there is little reason why prices should move except if somebody has an interest in making them move. So, from this perspective it would actually need a general, global move of hide and skin prices, a big shift in the currency markets or another unforeseeable event to trigger any major movement of prices away from present market levels.

We find it really hard to see any argument for a move upwards other than the ones that are always brought out when you can’t find any others i.e. a lower kill or the fact the “market always goes up in the run up to APLF” in Hong Kong. We, at least, haven’t heard of anything convincing so far. The downside should be protected by the fair valuation as already mentioned above.  

The kill: Well, the Christmas week was quiet and the New Year has not been a great start either. For the coming weeks the kill will continue with moderately and seasonally lower numbers which should be enough to meet market demand. 

What do we expect: Next week most tanners will return to normal production. The Asian customers will also have to decide on their strategies for the coming weeks and so, by the end of next week, the market should have some better idea of the situation. We think it is going to be difficult in the weeks to come with a lower US$, tanners fighting hard for further declines, butchers for the opposite, and production number being on the low side. So, tensions are set to grow with little change in price.

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