What happened this week: We could have copied last weeks report into this one with the only exception, that interest and sales picked up considerably this week and the number of hides sold easily compensated for the missing ones last week. Interest was widespread and came almost from all destinations with the usual dominance from the Far East. It is fairly difficult to get a clear picture, but the system of tanners using more and more global sourcing becomes the standard now. When we follow and believe the reports from the USA market reports than activity in this market was  reduced again while in Europe it was more active. This can be only interpreted, that Asian tanners find European hides still more attractive and so they satisfy their need to buy  still in part in Europe. Something which we can understand and easy to follow. Sales were well distributed between all the grades and as well dairy cows as well as bulls found their homes plus low grades. If one wants to find one item with less interest it were ox/heifers which however, represent only a small part of the production and consequently only play a minor role in the picture. As we expected, prices remained fairly well under

control and any attempt to increase levels failed as well as buyers temptations to bid down. Consequently all sales have been effected on unchanged asking levels. We have been certainly taken advantage from the fact that the grades we have mainly to offer are either steady to firmer from the traditional supply markets or in short supply (dairy steers and dairy cows), while the limited interest for ox/heifers can be explained by their weakness of the similar products from the USA. The question is now, have tanners been able to cover their needs for the next weeks or even months or do they have to continue to buy also in the coming weeks. At least for Europe this would mean further upside pressure for the raw material market, because inventories are continuing to diminish. At the same time it becomes more and more obvious, that leather prices can not be increased if not facing further downward pressure. The answer to that is using less expensive raw materials or to hold at least common raw material prices steady. This is reflected also in the constant demand for low grades. One has to admit, that tanners have been extremely successful in controlling the market and becoming fully flexible on the raw materials they need. A perfect

demonstration was the limited effect of the BSE problem this time. It just took a few weeks to redirect the sourcing to avoid a sustained outbreak of prices in the USA. This had two consequences, a) tanners quickly tested other alternatives and b) the surplus of European hides due to the crisis of the local industry found quickly new homes and have qualified for the productions in Asia.  Something what would have needed ages of trials and discussions was handled by the simple need to act and taking decisions. The kill: Tiring, not low, not high for the time of the year. With the slight decline every week we feel it is on the low side. Surprising were the official statistics with showed a 1,2 % decline for Jan 2004 against Jan 2003. What do we expect: It seems, that those tanners who have orders are comfortable with the present price levels. Consequently they cover what they can, viewing that further reductions for the moment can not be expected. Lower kills in the second quarter support the market from the supply side. If tanners continue to refrain from the market when asking prices are lifted, we will just stay on the levels were we are. Just higher priced (quality) hides could see some more price pressure as the leather market does not anymore reward higher quality with the premiums we were used to in the past.