What happened this week: This has been another week that could easily be described as a non-event. Interest from overseas clients was minimal, while interest from European customers was non-existent. Daily concerns about global economic development and the sharp slowdown of growth in the EU are certainly not helping to improve tanners’ moods. China is still experiencing Olympic fever and in Europe most people are still on holiday, but this is just part of the problem.

Taking the time and monitoring the market for upholstery production, the information obtained was frightening. The bad situation in Italy has been well reported and discussed, while reports from the Chinese upholstery tanners are little better, if not worse. Reports are indicating declines of 20-50% in orders during the second quarter and everyone is talking about this as the worst quarter since China seriously entered the upholstery production sector in the late 1990s. A number of famous names and shooting stars in the industry are said to be working at 50% or even less at the moment. While we may be in a low season of production, if order income is so slow and there is a struggle to keep even minimal production levels going, the courage to improve business after September is certainly limited.

As far as raw materials are concerned, this is probably even more significant because the last tanners know that there is a more than abundant inventory of hides suitable for upholstery production. So there is no real rush to secure raw material that might be needed later in the year and most upholstery clients are just sitting tight without have to worry too much about raw materials for the rest of 2008. It is probably appropriate to say that fear in this sector is ruling more than ever before.

The bright spot in the market during the past few weeks was the side leather business, but activity in this sector did not persist this week and the active customer base preferred to stay on the sidelines. In the end it seems that they have also covered their needs and taken a break to evaluate whether the weak cow market could tip the market situation in their favour again. At present it is still difficult to evaluate the real situation and, with the holidays in Europe, and with Asia preparing for the All China Leather Exhibition, everything is now on hold until the trade gathers again to obtain more inside information about the real market situation as well as about the outlook for the leather pipeline for the high season of production up to the end of the first quarter 2009.

The currency market will also play an important role for European suppliers. Even without supporting the business so far, we have now seen the euro retreat 7-8% and this has become a decent cushion against further price losses in euro terms. It has at least helped that our hides do not look completely overpriced and uncompetitive anymore. Now it will depend on the general trend to decide which direction we will be heading in next. Gaining optimism has already been reflected by only fractionally lower abattoir prices for August. This is certainly not reflecting the present market situation, at least not for cows.

The kill: There is no news here. Numbers and weights are low and steady and will stay so until mid September.

What we expect: Any major movement before the show in Shanghai would be a surprise. We are still confident about the male market and concerned about the cows, and we will not change our minds before we see a clear indication for the better after September.

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