What happened this week: This week was a strange one. In general, activity from Asia was somewhat better and with plenty of trader activity around one was tempted to believe that the market has started to improve. However, we still believe that it is still far too early to start celebrating; it could just be that this is simply a flurry of interest and bottom fishing after the holiday break.

Since interest from Asia was pretty widespread this week, we can clearly sense that many of our colleges breathed a sigh of relief thinking the crisis could already be over and that things will start to get better from now. We remain pretty sceptical. There are still abundant stocks all over, while the automotive and furniture industry is still in deep doldrums, the situation for the European tanning industry is even more than fragile and the financial consequences have not yet been seen. We think it is far too optimistic to expect a serious market turnaround based on some flurries of activity from the Orient.

What makes us confident that the market in central Europe has possibly grounded is the fact that, at present price levels, the existing demand for raw material is focusing on better quality hides. With so many top quality origins now available at prices almost never seen before, most of the remaining market demand is focused on this higher quality material. However, so far this demand has not been strong enough to actually exhaust all the stocks that have been building since the crisis started in autumn last year.

A number of suppliers now believe there is a chance for a market turn and that they can make more money from stocks to compensate for the losses made in the last quarter of 2008. This might be medium- or long-term opportunity, but short term it does not seem that the leather business and demand is strong or broad-based enough to allow significantly higher prices to be paid.

At present, only some domestic leather demand in China can be considered reasonable, and this is not enough to compensate (yet) for the declines in other markets. So, for the time being, the situation continues to be that for every hide sold here it is most likely that another hide is stockpiled in some other area and will sooner or later press on the market again. Sooner or later, reduced supply will help the market get back into balance, but raw material stocks will need to be absorbed first and stocks need to be moving up the pipeline again as the result of a brighter outlook for consumption.

Sales have been fairly reasonable and could even be called good compared with the results seen since mid January. Interest was shown across the board again and even dairy cows enjoyed a decent run. With the US$ staying reasonably steady, the currency market did not have much of an influence this week. A number of letters of credit arrived this week and, although not everything that was planned has come in, at least a bit of movement can be seen and this is offering moderate relief as far as warehouse space is concerned.

The kill: The carnival season and weather conditions are keeping the kill on the low side. With another cold period, at least we should see fewer parasite problems next summer compared with this year and with the warm winter of 2007-2008. The kill will stay low in the coming weeks.

What we expect: The next week should start to give us a better indication of whether the optimists or the cautious players will get the upper hand. There are quite a few trades still open that need to be carried over into next week. If everything can be nailed down it would move us on a step. Until mid April, we need to see more sales as it is most likely that activity will quickly slow down again in spring and towards the summer. If stocks are not absorbed by then it could become uncomfortable when the sun comes out.

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