Don Ohsman’s view from the US

Does size matter? Not in the case of the US hide market. US slaughter rates showed killing of fewer cattle throughout the end of 2014 and into January 2015. The 2014 total was down 7.4% below 2013, which was also down from the previous year. As of the end of January 2015, compared with January 2014, slaughter is down more than 10%.

The last Hidenet Report, just prior to the Christmas/New Year holidays, noted how much the market had fallen since November and was still on a downward slope at the beginning of December. This was regardless of fewer hides being available.

However, during the year-end hiatus, producers were able to bring the decline to a halt on steers, and as the new year began, it even generated a turnaround in the cow sector. This trend continued throughout January, buoyed by an exceptional export sales report, which at one point in the month had combined raw and wet-blue sales at 877,400. This is the largest total since 10 January 2013.

Of course, quite often there is more than meets the eye with statistics. The ongoing slowdown by longshoreman unions at all of the country's west-coast ports has caused large financial hardships on hide exporters - as it does for everyone else for that matter - and it has been causing an additional two to four weeks for ships to take containers on board. That means bills of lading were available too late for expiry dates on letters of credit. In other words, sales that were made in the latter months of 2014 could not matriculate and this caused renegotiations and resales.

A port in a storm

At the time of going to press, there is talk that the ports could possibly close altogether, and management is preparing to lock out works in order to bring the situation to a head in hope for an eventual settlement.

What must an Asian tanner that is interested in buying US hides think when looking at the inventory and soaking schedule? The port situation can and already has had a negative effect on the hide market. At least so far, shipments have eventually matriculated, but if the ports are closed, it is a whole other story.

To make it more difficult for US exporters to sell hides into Europe (so far Atlantic ports are operating as normal), the strong dollar is discouraging traditional Italian buying, especially of US wet-blue that has fallen in value in the past few weeks more than equivalent to wet-salted steers.

Back to supply

Some good news, Ross Pruitt of LSU reported that US beef cow slaughter during 2014 was 2.6 million cows - the first time this number has been under 3.0 million since 2006. Since 1990, when beef-cow slaughter fell below 3.0 million, it has been shown that the beef-cow inventory normally sees an increase the following year. And, given the improvement in pasture and range conditions in 2014, this will likely be the case when USDA releases the results of its survey of producers.

Expectations are that the beef-cow inventory grew by approximately 0.5% during 2014 as a result of improved pasture and range conditions combined with a rapid decline in beef-cow slaughter. Increased heifer retention will also factor into the expected increase, although there is little data on where retention is the strongest until USDA releases its inventory report.

Cattle prices in 2014 were more than the highest rate that occurred in the 1990-95 cyclical expansion, which was 18.4% in 1994. This year, beef replacement heifers could be more than 19% of the beef-cow herd; a replacement inventory percentage not seen since the herd build up to the all-time cattle inventories of the mid-1970s. While this would indicate a relatively aggressive expansion rate, herd expansion will still be a slow process over the next few years because of the low herd size from which expansion is beginning.

Furthermore, regarding supply, USDA reported that it estimates that 2.325 million head were imported from Canada and Mexico into the US in 2014.

So does supply matter? No. For example, world cattle supply was essentially stable in 2014 compared with 2013 as well as 2012, and yet the market reached historic levels at all bovine origins. Why? Possibly because of unparalleled Chinese demand, combined with fashion and recovering economies in many parts of the world. Demand caused the increase in prices, not a lack of US supply.

Looking ahead, to keep prices even close to current levels, demand would have to pick up again in China for the near term, if not considerably beyond, and this is not about to occur.

Extracts from the Hidenet World Report

Argentina

Prices on BA wet-salted hides fell $0.03-05/kg. Shoe upper crust prices eased as well.

Australia

NSW meat works were offered at $99.00 on 42/44kg CFR. Conventional Queensland TFA cow/ox 39/41kg were available at $86.50 CFR.

Bangladesh

The ongoing countrywide blockade enforced by the BNP-led alliance has caused Tk4.59 billion loss to the leather sector, businessmen say.

The Bangladesh Tanners Association gave this figure at a press conference held at Dhaka Reporters Unity. The organisation urged political parties to solve the present crisis through dialogue.

Reading from a written speech, association president Shaheen Ahmed said: "The country's transport system has collapsed due to the ongoing political unrest and violence. It has created a serious crisis in the transport of leather and leather goods.

"Transport of finished leather and leather goods to the Chittagong port has become almost impossible. Transport costs have tripled. But there is no surety of the goods reaching the port despite that. We're facing huge losses."

The businessmen demanded a 10% cash incentive on exports to compensate for the losses.

They also demanded the constitution of a Tk50 billion fund to extend low-interest loans to the sector.

Ahmed said the Tk1.5 billion pledged by the government for the shifting of tanneries from Dhaka's Hazaribagh to Savar was "insufficient".

Brazil

Fresh/green prices were firm again. Asking prices for TR 1 full substance, wet-blue ranged between $1.75 and $1.85/kg CFR. Wet-blue drop-splits could be bought at $1.50/kg CFR.

China

The price of steer hides in Jilin and Shandong showed a steady trend in the period 3-8 December, with moderate sales. The sheepskin market in Gansu dropped by 10 yuan a piece. Recently, the goatskin in Gansu was sold at 35 yuan a piece (produced from Tibet with no fur hair); tan sheepskin (a type of sheep raised in Ningxia and Gansu) sold at 260 yuan a piece (120cm); local breed sheepskin sold at 6 yuan a square foot.

The output of national leather totalled 54.44 million square metres in December, with a growth of 11.32% compared with November of 2014, but reduced by 7.61% year on year. The main production regions are centred in Zhejiang, Henan, Hebei, Jiangxi, Fujian and so on. Among them, Zhejiang ranks top with an output of 13.89 million square metres, accounting for 25.53% of the total output; followed by Henan with 10.52 million square metres (19.34%); Hebei with 6.06 million square metres (11.14%); Jiangxi with 5.69 million square metres (10.46%); and Fujiang with 5.50 million square metres (10.12%), according to the data released by the National Bureau of Statistics.

Colombia

From 3-6 February, Bogota received one of the most important leather and footwear exhibitions in Colombia with the International Footwear & Leather Show (IFLS). More than promoting the exhibition of Brazilian products in the event, the Centre for the Brazilian Tanning Industry (CICB) intends to strengthen Brazil's image in the country, especially since Colombia is on the list of nations with a relevant shoe production.

With support from programmes such as 'Brazil Beyond' and 'Apex Brasil', which work for the promotion of Brazilian products in the international market in connection to the federal government, CICB is participating in the exhibition in an institutional character. This is a joint action of ABRAMEQ (Brazilian Association of Machinery and Equipment Industries for Leather, Footwear and Allied Trades); ASSINTECAL (Brazilian Association of Shoe and Leather Components Industries); and ABICALÇADOS (Brazilian Footwear Industries Association). Its objective is to reinforce the concept of a country that exports quality products.

Egypt

Egypt's leather sector expects to attract new investments estimated at E£P4 billion ($547.8 million) in 2015, said Yehia Zalat, head of the Leather Industry Chamber at the Federation of Egyptian Industries.

He said the sector can now attract more investments, backed by the Egyptian Government's latest decision to make indicative price lists for leather industries and cut export subsidies on crust leather. He pointed out that Egyptian trade suffered from imported products being dumped into the market, such as shoes, in 2013.

Moreover, Zalat added that indicative prices would balance local shoe production against imported shoes; saying it would support and encourage national factories to improve the quality of products.

EU

EU exporters are finding an increasingly acute shipping bottleneck on certain US west-coast ports where hide containers are piling up due to labour issues there. The problem is lasting far longer than originally thought and creating problems for tanners in Asia to get products into their factories. As a result, they have had to buy additional quantities of material from sources where clear sailing channels could be guaranteed, among those are European shippers. The dollar advantage is also an obvious bonus for the Chinese to buy European.

France

French selected coloured luxury-type 13kg and up skins dipped just below the €6.00 mark in moderate business, while the drop in French black and white 13kg and ups was even more pronounced.

At least one parcel moved for just €5.00 - down €0.50 cents from previous business. Strangely, the heretofore difficult to move French 8-12kg category actually perked up with sales at the steady €5.00 mark and another registering a $0.50 gain at €5.50 delivered. It has been a long time since lights sold for more per kilo than a heavier-weight category.

Tanneries Dupire has filed for bankruptcy protection owing to a decline in orders and high raw-materials costs. The company, based in Châteauneuf-sur-Sarthe near Angers, has been given six months by the courts to turn its business around.

Tanneries Dupire chief executive Cyril Ponsignon said on making the announcement that the tannery would continue to operate and that he was optimistic about its future if a new owner can be found.

Ponsignon explained that Tanneries Dupire had, for a number of years, attempted to find a niche for itself in the luxury space.

"That move into luxury will have to be faster now," he said. The tannery has around 60 employees.

Germany

Better production South German 40 and 50 and up traded around the €2.30 level for fresh hides; there were also opportunities to buy cheaper (a good $0.10 or so) for salted goods of a similar description.

India

Finished leather, footwear and leather goods, and accessories have each crossed the $1-billion mark. The growth was led by footwear (25.0%), footwear components (20.0%), and saddlery and harness (18.5%).

Though this sector has been posting double-digit growth in a month-on-month exports basis from April onwards, it posted single-digit growth during October and December. Out of six categories, exports during December slumped in three categories.

The India International Leather Fair drew a huge crowd of customers, traders and exhibitors to Chennai city. The three-day 30th edition of the India International Leather Fair 2015 was opened for business visitors. The exhibition showcases entire range of products - from raw material to finished products and auxiliary products such as finished leather, shoes, shoe components, leather garments, fashion accessories and leather goods. General manager of India Trade Promotion Organization V Kumar said the machinery and equipment displayed by foreign participants were in great demand among Indians. The domestic leather industry provides employment to approximately 2.5 million people.

According to CLE (Council for Leather Exports) India is the second-biggest producer of footwear in the world after China and accounts for 10% of global production of 16 billion pairs, but 96% of India's production is for the domestic market.

Italy

Chief executive officer of Salvatore Ferragamo Michele Norsa has released positive previews for the fiscal year ending December 2014. Trust and optimism dominated his speech; advantageous exchange rates and raw materials will have a positive impact on trend for 2015; moreover, it is expected that leather goods and shoes will be the main drivers of the company's growth.

European Commissioner for Trade Cecilia Malmstrom responded to a request by Italian tanners submitted in November to look into tariffs on hides and skins from new members of the World Trade Organization (WTO).

The tanners had complained of a lack of reciprocity in the regulatory obligations in terms of the protection of health and the environment from non-European countries, as well as tax burdens and poor access to credit for small businesses.

The reply stated that the overriding priority is to get a commitment from partner countries to eliminate or reduce export duties, according to Italian press.

Vice-president of the Italian tanners association Assoconciatori Roberto Giannoni said it shows the European Commission understands tanners' concerns.

"We must use all possible means to protect the tanning sector by showing at Commission level that tanners are having difficulties in this market. The answer from the Commission can be considered a good result," he stated.

Pakistan

Pakistan's leather footwear industry exports showed growth in volume and value in the first half of the current financial year (July-December 2014).

Exports of leather footwear over the six-month period were 6.9 million pairs, bringing in revenues of $65 million.

This represents growth in volume and in value of 3.0% and 23.1% respectively. The average export price per pair for leather shoes from Pakistan went up from $7.89 to $9.43.

Paraguay

Cattle kill in Paraguay increased by 28% or 1.9 million head in 2014. A further increase of 15% is predicted for this year following the massive culling after the FMD outbreak in 2010.

Portugal

According to figures released by Apiccaps, the Portuguese footwear association, shoes export in the first 11 months of 2014 increased by 8% to €1.7 billion. Even though there has been a 45% increase since 2000, pessimism dominates because of the slowdown in France (-0.4% in the third quarter of 2014) - the main market for Portuguese shoes export with a 20% share against 14% of non-European markets.

The kick-off meeting of the Erasmus+ project High-End Shoe Innovative Training for Luxury Footwear Manufacturing took place 22-23 January in San Joao da Madeira, Portugal, at the premises of the Portuguese Footwear Technology Centre (CTCP).

The strategic partnership includes the CTCP; the Spanish INESCOP and the Italian Politecnico Calzaturiero; the French vocational training centre le Lycée du Dauphiné; the Czech Footwear Association; and the European Confederation of the Footwear Industry.

Turkey

The double-face situation in Turkey has not improved at all. Even low skin prices have not stimulated demand as clear evidence that the problem is not a matter of price. There just are not enough buyers to go around.

UK

UK cows sold into China on a steady basis of $83 C&F. This is in line with competing US fleshed black and white cows moving at around $85-86 C&F main Chinese port.

US

After stabilising over the Christmas/New Year holidays, the most prodigious selections, heavy Texas and branded steers, saw their value drop between $2 and $3 a piece. This equates to Asian tanners able to buy Texas at a basis of $102-103 C&F, with branded steers somewhat cheaper. However, available at a lower supply and finding good demand, heavy native and butt-branded steers were essentially steady. The cow sector is firm on very limited availability.

Vietnam

Annual Vietnamese footwear exports to 47 countries in 2014 were led by the US at $3.3 billion, up 26.71%. Belgium was second and Germany third among export destinations.