What happened this week: Well, we are again at a point where it makes little sense to think about a review of the market as the global community is pretty much paralysed by what is happening in the financial markets. Companies are more or less just being administrated at the moment and major decisions are not really being made. This particularly applies for purchasing departments.

In Europe we would call the market nonexistent. Most tanneries are covered for their present production and for the weeks to come. With order books getting shorter every day their inventory is currently sufficient. Hardly anyone in Europe has a clear picture of how the market will develop in the near future. Most are afraid of a major slowdown in sales and orders, which would mean that production could be cut and that inventories will last longer. The only thing that would prevent this would be if people have the courage to bet on a turnaround in the foreseeable future and start building stocks in view of low hide prices.

So far, there are no indications of this type of reaction yet, either in the hide market or in the stock markets. With the situation in the financial markets we have to expect a massive slowdown in consumption and many are already anticipating a recession in 2009. The situation can be seen most clearly in the automotive market, where almost every brand is cutting production and bad news is hitting the headlines almost every hour. Just-in-time production is causing the pipeline to jam quickly and the problem is being passed from supplier to supplier.

As a result, the situation for hides that are mainly used in this pipeline is difficult. Existing contracts are still being honoured, but the outlook is grim, and expectations for production well into 2009 look far from promising. A similar situation can be seen in the upholstery market, where the pipeline has been jammed since spring and cheap hides used in the segment are almost impossible to sell.

However, going against the bad news dominating the markets, some relief has been offered. Shoe upper hides continue to find decent demand and Asia, in particular, has been actively bidding on males and ox/heifers. Since the US market has been steadied, European prices look pretty attractive with the firmer US$ exchange rate. In the end, sales were better than we expected during the week. However, with developments in the financial markets continuing until Friday, activity dried up after Wednesday and it seems best to call a deal a deal when the goods are shipped and the money is in the account.

People are delighted to hear any kind of good news in these difficult days and may be cheered by the fact that China seems to have avoided the brunt of the global crisis so far. Nevertheless, it would be very surprising if the problems do not eventually catch up with China as well. In the meantime, many Chinese companies supplying the domestic market can take advantage of lower import prices and better margins.

The kill: The kill is slowly picking up; however this is nothing special for this time of the year. The slaughter will increase further in the weeks ahead, but we are only expecting a moderate increase.

What we expect: Everything depends on the financial markets. If there is no settlement and no return of confidence, there will be no good news for the leather sector. It is going to take a while for the market to digest all of the drama. Without more security in the financial markets it will be difficult to hold prices in the near future. Cows still look pretty particularly troublesome and further declines should be expected, especially if the US$ does not helping euro prices again.

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