Chinese plan to open tannery

12 March 2008



Huiding Leather, Beijing, are planning to open a tannery in Kenya now that the Chinese government seems bent on putting polluting tanneries out of business. China, the world's biggest buyer and processor of hides, is expected to implement new import duties on raw hides from May 1 and many Chinese tanneries are expected to relocate to Vietnam or India in the foreseeable future.
Representatives from Huiding Leather have made two trips to Jenya, most recently in December, to look for suitable locations. They are considering an investment of between $2-3 million, according to assistant manager Cheng Wangang. Such a move is likely to worry local tanneries since they already face a shortage of raw materials. In May 2007, only half of Kenya's 15 tanneries were operating due to the lack of supplies.


The shortage could ease however. One of the main causes was mounting imports by China, despite measures by Kenya to stop raw materials from leaving the country by imposing a 20% export tariff. China's purchases of raw hides from Africa increased by around 20% last year, estimates Song Xian Wen, director of the Shanghai Leather Technology Association, with a third each coming from Kenya and Egypt. The government raised the duty on raw hide exports to 40% from January 1, which could keep more within the country. Cheng said the increase in duties is ‘the primary reason' for the firm's planned investment in Kenya. The costs of producing leather in Kenya would be more than 10% higher than in Huiding's Beijing factory, pushed by higher rates for electricity and water. Importing chemicals for processing the leather will also be costly for the firm. While tanning products have increased in price globally, Chinese companies have access to a well-established supply chain that helps keeps costs down. But Huiding Leather also want to guarantee a stable supply of raw materials. ‘If we operate the tannery ourselves, supplies of raw hides from Kenya and production volume can be guaranteed', Cheng said. China is the world's leading leather producer and consumer, using around 680 million square metres of leather each year and employing almost two million people to makes shoes, upholstery for furniture and cars, as well as bags, clothing and other products. But it can only meet half of the demand for cattle leather and 30% of demand for light leather through domestic supplies, says the China Leather Industry Association. The country's leather supply shortage has been compounded by the relocation in recent years of US, European and Japanese tanneries to the country, seeking to benefit from lower labour costs and less stringent environmental regulations. Typically, China relies heavily on imports of US raw hides, which accounted for about 65% of the total last year. But when import duties of 22.7% are applied to these hides from May 1, they may become too expensive, say industry experts. ‘It's going to take a while for the tanning industry to move to lower cost places', says Dick Veale, vice president of exports at a major US hides firm. ‘Until then, Chinese tanners will be forced to pass on the higher costs to shoe makers and other customers. These firms say they can't absorb those prices, particularly with weaker demand from the US economy this year.' That could mean that some Chinese traders will be prepared to pay higher duties on Kenyan hides as demand drops for the more expensive US hides. A short-term rise in US hide prices last year, driven by strong demand in emerging economies such as Russia and Korea, already triggered increased buying of Kenyan hides. Some shoe makers preferred to switch to synthetic materials however, rather than buy lower quality leather. Both US and Chinese leather experts are unsure how the global trade will look in a year's time. Veale believes China will no longer be buying a third of US hides. Ms Song believes that ‘China will definitely import more from Africa', given that African hides cost around 30% less. In the long term, China's import tariff on raw hides should boost demand for higher value finished leather although African producers are at a strong disadvantage in this area. The continent has about 15% of the world's cattle population and about 25% of the world's sheep and goats. Yet although hide exports are going up, it accounts for less than 2% of the world's leather trade, according to Gustavo Gonzalez-Quijano, secretary general of Cotance. Countries with plentiful supplies of hides and skins such as India, Brazil, Pakistan and Argentina impose hefty export taxes, leading to unfair trade, says Gonzalez-Quijano. These markets are at an advantage when it comes to turning the hides into finished leather and adding value. ‘Half of the price that the tanner charges to customers is the cost of the hide. That's enormous and, therefore, if you can artificially reduce this you have a real market advantage.' Kenya's higher export duty on hides is unlikely to beat the subsidy effect that similar moves give to bigger players in the leather trade, Gonzalez-Quijano believes. ‘If export restrictions or export taxes on raw materials proliferate at global level, as they do, and are not limited to those countries really in need, small players like Kenya will never make it into the premier league.' Kenya earned Sh185 million for leather exports to China in 2006, making it the country's third largest export to China, closely followed by hides and skins, worth Sh178 million. Source: Business Daily (Nairobi)



Privacy Policy
We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.