What happened this week: Business activity and sales were winding down further. Asian customers were busy to organize the final administrations such as payments, L/C openings and shipping instructions before closing the offices and departing for their Lunar New Year break. Although offices are closed now for some days many remain available by email and via their cell phones to make sure, that shipments and administration continue to remain streamlined.  As far as business was concerned the week remained reasonably quiet. There were some left over sales from the previous week for dairy cows and abundant demand for low grades which could not be satisfied due to a lack of supply. If offers would have been available we have to assume, that also interest for ox/h could have been satisfied, but everything was basically in low gear. It seems, that buyers are taking now a welcomed break to sort themselves out for the next move. In Europe the situation was pretty much the same. Many tanneries over here are influenced by the carnival season and school holidays and consequently also in our part of the world activity slowed down and will most likely on resume end of

next week. Taking also a moment of relax and thinking about the situation one can not deny, that tensions in the markets are constantly growing. The gap between the feel and the economical realities in the leather business continues to widen and whenever the conditions are overstretched they need to return into a normal balance. The situation, that margins in the manufacturing pipeline are not sufficient or not even existing hasn’t neither improved nor resolved for quite some time. The hope for a raw material price adjustment to sort it out has been disappointed so far and the vast majority of hide prices around the globe, facing strong demand and forward positions, remains also for the near future well protected against major corrections. True is, however also, that with the massive profitability problems the demand for raw material continues to shift into the lower and more economical end. Prices and demand for economical hides continue to rise while the medium and higher end of the product range still profits from the sales and conditions during 2006 rather than from a strong performance in 2007 so far. With leather prices showing still a massive resistance against price

increases continue higher production and raw material cost to eat aggressively into cash-flow of many. With order books for leather basically well filled still not a situation which can be easily managed. So far 2007 has been quite uninspiring for European hides and directionless. Resistance  against further price rise is massive. The supply side has prevented so far the market from a correction. Side leather business is still strong, while we are convinced, that upholstery is facing more trouble than most people tend to believe. The kill: Also the kill is totally uninspiring. 2006 ended with a 1,5 % increase vs. 2005. However, the second half saw already a sharp decline after an about 8 % increase in the first half. With increasing milk production per head and little changes in the herd not much Next week the kill will be low in most of the country due to the carnival season.  What do we expect: In public little will change also next week. We still sense massive trouble (profits and cash)  in the leather industry – at least in Europe. The USD has fallen and resistance is growing while butchers are still not admitting the need for price adjustments. So, the race in the thick fog continues with the hope not to crash into any obstacles on the way ahead.