What happened this week: There is actually not much to say about this week. Trading remained on the low side and there was only the business with normal and regular buyers that could be called market activity.

So, once again the currency market was the more exciting challenge. The US$ started the week on the low side and came ever closer to the magic figure of 1.50- against the euro before making a sharp turn to trade back at levels closer to 1.46. But, it was not only the currency market making the headlines last week and worrying the financial markets. The continuing horror stories about losses at private banks also sent the stock markets on a downhill rollercoaster ride. The global community is now getting scared about the outlook for 2008 and fresh rumours from Italy about financial problems, late payments and an intensified focus on the industry by credit insurers are not making things any easier, despite the pretty regular business conditions which remain, as psychology is becoming more and more of a factor these days.

In general it doesn’t look too good for the industry — in Europe at least. The weak US$ and rising production costs are making the industry less and less competitive. Production capacity has been inflated for a long time and for various reasons it has never really been adjusted. In fact quite the reverse is true as during the years when the US$ was strong and export business was good a sizeable volume of extra capacity and new tanneries were built — mainly in Italy. Now the re-adjustment which had already begun some years ago north of the Alps is also in full swing in the south. Voluntary shut downs marked the beginning and now we are seeing the forced ones follow. The list of factories which have ceased operations in the last two to three years is already pretty long and it seems that it’s likely to get even longer in 2008.

A little bit of activity was also seen from Asia this week even though one can already see a slow down in the run up to the upcoming holidays. Many tanners are closing their books and have already made their plans up until the end of February or even well into March and don’t see much need to participate in the raw material market before they return from their holidays.

Whatever business was concluded this week was again focused on dairy cows. Some bulls also found homes, but one had to bite the bullet and take what the overseas markets were offering. Only the firmer US$ eased the pain a little. Anyway, once again achieving sales to prevent building stocks might well still be the safest bet for the time being.

Finally, the situation might still be somewhat better than the mood. At the end of the day we have to accept that the start of 2008 has probably been one of the slowest in recent years — except in terms of the volume of shipments. As far as prices are concerned, not much happened except for reductions on lighter weight bull hides. The erosion of euro revenues due to the weaker US$ hasn’t yet been reflected at the abattoirs and it will be interesting to see how the next round of buying is dealt with and whether some of our colleges can maintain their optimism.  

The kill: Last week’s number actually came in as a surprise. The kill was really strong and nobody was able to give any explanation for this. It is now believed that this will continue for a week and then drop sharply. But, seeing as the forecast for the kill hasn’t been any more accurate than that for the weather, let’s wait and see. 

What do we expect: As long as the market does not produce any really good news, we fail to see what could actually lift the heavy tone. The mood is poor and the market is pretty nervous. Current raw material levels are favourable for those who have got business and so the strong will get stronger while the weak might have to throw in the towel. So, it will continue to remain difficult and the main focus will remain on financial issues, which could be as difficult as in the late ‘80s and ‘90s.

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