What happened this week: The tide has now turned. Despite all of the sales, the demand, and the forward positions, the currency factor is slowly coming into play. Some would argue that this only applies to those who depend on overseas exports and that others—whose hides are sold predominantly in the European markets—are not affected, however, this might be too short-sighted a view for anybody who depends on a currency other than the US$.

The greenback has now lost quite a bit of its value against other hide exporting regions, such as the EU or Australia which means that the comfortable period of stable, favourable currency exchange rates for non-US exporters may have come to an end. At the end of the day, this was exactly what the financial markets were looking for.

With extended sales positions for raw material around the globe and a continuing positive mood in the leather industry, raw material suppliers as such are not concerned as yet, because they don’t have to be. Anyone who has sold and covered the currency positions can now sit back and relax for some time. However, under the present conditions, we have to consider that European hides have now become quite expensive and, as long as the alternatives do not start to move, most EU hides are now starting to price themselves out of the market. And, as has been said before, US prices would have to jump to catch up.

However, this is all in the medium- to long-term, because for the next 6-8 weeks—and this means basically until the summer holidays—not too many will bother about it as there are pretty empty inventories along the supply chain. There are still a few production gaps which need to be filled and even the stocks of the heavy hides have slowly evaporated over the past few weeks. Consequently most can take it easy and any concerns may not begin to appear before mid summer when the final decisions have to be made as to how to start the production cycle for the second half of the year.

Leather prices will have to move quite drastically to leave tanners an adequate profit. If not, it is going to become pretty tricky as the present imbalance between supply and demand of raw materials has to be evened out–one way or the other. The easiest option would be a decline in leather demand whilst the tough route would be one of shut downs or production cuts. The outcome remains the same; the only unknown factors are the timescale and what will happen along the way. For the moment, however, nothing seems to be reducing interest.

Sales were spotty this week. Demand from Europe plus some isolated interest from the Orient added up to more sales than one would expect. Prices were stuck at steady in Europe and in the Orient as it was not possible to fully convert the decline in the US$ into higher prices. So, it was again a question of either following the clients or speculating on higher levels. We decided to keep the ball rolling and to take what was reasonable.  

The kill: The kill was again influenced by the holiday on Monday and the better warmer weather, at last. Overall there was little change and the kill it is just about on the level one would expect and hope for this time of the year.

What do we expect: The extending decline of the US$ is not having any effect yet, as not many hides need to be sold. However, if the value now settles well above $1.25 or even $1.27, it will weigh heavily on euro values and tanners will also feel it in their export calculations. Most likely it will not make any short-term difference in the market due to the arguments stated above, but in the medium- to long-long term, the US$ direction will give, as it always has, a reliable indication of the fundamental direction of the market in general. For the next week, however, not much is going to change.