THE WEEK IN REVIEW

With few exceptions, mostly related to the brands and main projects, most tanners are in doubt on what to buy.

Some usual customers are not giving their order yet as they even don’t what’s going to happen, or what are they going to sell after holidays in the north Hemisphere.

Many tanneries/customers abroad are realizing now that the wishful thinking of a market going so much down is not going to happen.

There are simply no stocks of anything worldwide. The volumes that have been traded during 2010 were not enough to fulfill both, stocks and consumption. Almost everything was used and consumed. Maybe some few items that were not demanded are in stock, but mostly speaking everything is gone.

We couldn’t agree more with what we read that some tanners committed the automotive industry, entered into a fight too early at the beginning of the year. And this made them accept finished leather prices that couldn’t be afforded unless they lower too much the selection without altering the specifications, or take a big loss.

Optimists say they are taking a loss. Well, not that much.

Mostly they are simply lowering the selection and not a bit, but a lot.

This has a strong influence in the Brazilian and Argentinean leather production and it would be at least weird if we say we don’t know what’s being shipped to abroad, and therefore what is that tanners that produce automotive upholstery are using for finishing.

And it’s definitively not the case in which the supplier of crust from Brazil or Argentina, are shipping an inferior selection than contracted. They are shipping the exact selection that was contracted and the buyer is in an absolute accordance to this. The name of this selection is called “price”. Every year, being it in a major or minor scale, but it’s the same old story.

The Brazilian Center of the Tanning Industry (CICB), thru it’s President Mr Wolfgang Goerlich, is criticizing the lack of control on the law that should be applied in the country, regarding the fact that is forbidden to mention the word leather if the merchandise is not real leather.

We are talking about those expressions such as “artificial leather”, or like it’s commonly used in Asia “man made leather”.

I mentioned this in the report many times, in one a way or another, and even raising the discussion about suppliers that produce this kind of material for not being along in the same leather fair. In the best case they should be altogether in another and separate room.

But why bring this up again? It’s been proven futile

Most of the consumers worldwide (that’s right, worldwide), and when I say most I mean really most, do not know how to distinguish leather from these artificial materials theat are around us, mostly now a days when the leather is each time lower and much covered. Only the use of the product itself will teach them it’s not leather, and then its too late. Maybe it would be good if this law would be somehow applied worldwide.

Still speaking about Brazil, In June the country exported $165 million, in some form of leather which was about 73.68% more than June 2009, and also 5.77% more than in May this year. During the first semester Brazil exported $873 million, against $492 on same period during 2009.

It was released that American slaughters were of about 667,000 heads last week, and this is considering it’s been a good season with big kills.

If we multiply this by the number of weeks of the year, we will come to a figure of about 35.3 million. This is about 8-10% less than Brazilian slaughter of last year, which was considered to be the lowest in a long time (with herd reduction and all that…).

Right now the figures seem to be improved although we cannot trust official releases about this since they come very incomplete and without considering what is not officially slaughtered…

RAW HIDES

In Brazil the situation seems to be weird. Seemingly there are not enough hides for everybody, the dollar rate sometimes helps during some days and sometimes it doesn’t during most of the time. In local currency raw hides had another rise differently from region to region.

We maintain the same price in dollars in our chart since this has been either influenced by a much lower dollar rate some 3-5 months ago and now, with a better dollar rate but a much higher value in R$ due to the increase with rise after rise.

WET BLUE & CRUST

We cannot say there isn’t any movement in prices. There is.

Buyers are trying to move downwards and sellers are forced to move upwards. This is what we can call a stop.

The market will stop if the buyer side doesn’t recognize that their prices are unreal in what concerns the cost of doing the leather. The seller side works only with costs that affect the price of the wet blue hides and crust leather they sell. The buyer side works always with the edge in which the final consumer is involved. And what happens is that his negotiation is with their final customer that all the time asks for a lower price not because the final consumer asks for it. But because they want to win the price war against their competitors.

Well gentlemen, this customer is wrong. They are transferring all what they want to do in the market to the whole chain that produced the product he is buying. If this is done indefinitely something bad is going to happen. You don’t take juice from an orange twice. But you can have a double crop of oranges if you are wise and know how to invest… It’s just a matter of handling it properly.

PRICES

Prices in Brazil (Most of the prices below are the current prices that we know to be the ones being really used and at which there are business in the market, unless they are market “asking price”).

Click on chart to view underlying data.

Wet blue, whole hides, machine flayed, full substance, average 48/52 ft, average 23 kg

Selection TR1 at around $ 1.25-1.30/ft CFR.

Selection TR2 at around $ 1.15/ft CFR.

In sides, we can say that prices are about these:

	substance 2.4/+ mm
selection B	$ 1.40
selection C	$ 1.20
selection D	$ 1.00
selection E	$ 0.90

The crust leather for upholstery, in substance 0.9/1.1 mm, in sizes varying from 48 to 56 ft:

$ 1.25-1.28/ft CFR for selection TR1

$ 1.15-1.18/ft CFR for selection TR2

The automotive upholstery leather, in substances 1.1/1.3 to 1.2/1.4 mm, stucco and buffed, at:

$ 1.35-1.40/ft CFR for selection TR1 (Asking price)

$ 1.25-1.30/ft CFR for selection TR2 (Asking price)

Prices in Argentina

Click on chart to view underlying data.

The crust leather for automotive upholstery, in substance 1.1/1.3 to 1.2/1.4 mm, has been sold at levels like:

$ 1.35-1.45/ft CFR for material that can either be stucco and buffed for the most requiring customers, but usually sold for full grain type of leather.

And at $ 1.25-1.30/ft CFR for a medium grade, stucco and buffed.

For upholstery crust leather, we can find prices from $ 1.15 up to 1.50/ft CFR, depending on selection, grain, region, substance, etc.

For shoes, in substance 1.2/1.4 mm, natural/not dyed, prices have been:

TR1 - $ 2.20/ft CFR

TR2 - $ 1.80

TR3 - $ 1.40-1.50

Everything below is considering the usual brine cured, no bulls. Range weight for salted is 14-19 kg and for fresh hides is -/24 kg.

Please note these are the average prices, so it might happen someone is paying more (for the higher end) or less (for the lower end) depending on the region.

Buenos Aires / Mendoza

Steers	$ 1.35
Cows	$ 1.00
Heifers	$ 1.24