Loving meat affects everything!

A number of medium sized tanning groups appear to be investing in Argentina at the moment. Strong exports, a weak currency and restrictions on exports of raw and semi-processed hides have all enabled positive market conditions. Coupled with this, Argentina has an abundant source of good quality raw materials and good hide procurement appears to be key to success in the local leather business. The meat and livestock industries are so vital to the domestic economy and basic culture of Argentine people that sometimes it becomes a political topic. As a byproduct of the meat industry, the leather sector gets drawn in. Depending on whom you talk to in Argentina, you will get a different reason for the current situation in the tanning sector. Everyone agrees, however, that in general the market is good and the cost of raw materials are going up. Table 1 shows that the Argentinian tanning industry is still dominated by large footwear upper and upholstery leather companies with the Sadesa group heading the list of leading exporters. Other large tanning groups, particularly in the upholstery sector, dominate the list. A meaty issue 'The recent decision of the government to control the price of meat in Argentina has had an indirect impact on the leather industry', Gustavo Trossero, general manager, Wyny HTLG Argentina, told Leather International. The population enjoys meat and, in general, Argentina is a high consumption country. But faced with increasing inflation the government took steps to control meat prices, which led to a reduction in exports. Consequently, the slaughterhouses processed fewer cattle and thus the supply of raw hides was reduced. For a short period, the government also introduced a ban on cattle weighing under 290kg being slaughtered which made the situation even more acute. This led to a virtual stop in small hides available on the market. However, this was soon lifted. 'The meat companies and the government have been in negotiations and an agreement has now been made and the situation has eased. From early April, the meat producers had agreed to provide a certain level of meat cuts for domestic consumption and as compensation the government will allow the rest to be exported', he added. The government interference in the market along with high demand from the tanning sector has led to higher raw material prices. Alejandro Pueyrredon, director of leather dyestuffs manufacturer, Vilmax, expressed a different view on how prices have risen. 'Raw materials prices are going up because the tanning industry in Argentina is working very well at the moment. It is not really the political situation that is putting up prices', he told Leather International. Despite the current situation, most tanners that we visited were very busy, working at 90% capacity. One such company was the Curtiduría A Gaita; we visited the group's Pellegrini tannery located in the southern Lanús district of Buenos Aires close to the Riachuelo river. Jorge Carlos Told, quality manager at Gaita explained: 'This is a particular moment in the leather business as the cost of raw hides is high due to a shortage of slaughter in the meat industry. Some plants are working with reduced inventories, as the availability of hides becomes a problem. Fortunately for us we have built up good stocks of raw hides.' Jorge Told did think that the situation was only short term and that prices would begin to come down during the next few months. Gaita process bovine leathers for footwear upper, leathergoods, furniture upholstery and garments. Told is located at the Pellegrini tannery, which is one of two owned by the Gaita Group. Positive signs According to Horacio Gutiérrez, general manager of leather chemical suppliers Pellital, the current situation facing the tanning industry is quite distinct from more normal times. 'I would say that we have a situation where the top ten largest tanneries in Argentina are working very well at the moment while others have reduced production while raw material prices remain high.' A full breakdown of the top 25 tanning groups can be seen in Table 1. Argentinean tanners are still in a good position on the export markets compared with others such as Brazil as the overall quality of the raw material is higher. A break down of bovine leather exports by destination, type and value can be seen in Tables 2, 3 and 4. Although it is worth noting that the figures supplied in Table 3 by Indec are 9.6% higher than those of the Argentine Tanners' Association - CICA. 'I believe the mini-crisis has already passed which was not the fault of the tanning industry but that of an internal political problem between the government and the meat producing industry', added Gutiérrez. Pellital are located north of downtown Buenos Aires and supply chemicals for Dystar in many southern cone countries. According to Table 2, the largest export destinations of Argentine leathers are China, USA, Netherlands and Mexico, accounting for almost 61% of the total. Table 5 highlights Argentina's export business with the main global trading blocks on a monthly basis throughout 2004 and 2005. Exports grew in three of the four trading blocks with only Mercosur seeing a fall. Asia, especially China, is the main export destination of leathers processed in Argentina. Luis Cisilino, sales manager of the medium/large tanning group Donto, provided a further sign of the positive market conditions. The company have two tanneries and a finishing plant located close to Buenos Aires and process full bovine hides for furniture upholstery and side leather for footwear uppers. 'The main problem for us in recent weeks is providing our customers with accurate quotes for shipments, as it has been difficult to gauge the cost of raw hides. But in general I would say that the situation is good. In Argentina we have learnt to manage the peculiar business here and we are used to changes in the political and economic situation', he added. Currency effects Exports of Argentine-made crust and finished leather are very good at the moment. The weakness of the peso is also a positive factor helping exports, although some people such as Alejandro Pueyrredon of Vilmax believe that the peso is still overvalued against the dollar and would like to see a further 25% devaluation to make Argentinian companies even more competitive on the global market. Vilmax export their dyes to over 40 countries worldwide. According to Gustavo Trossero of Wyny, the exchange rate of the peso to the dollar is good at the moment but it has a minimal impact on running a business in Argentina. Importing items such as machinery and chemicals are paid for in dollars as is payment of raw materials, which is generally the largest financial outlay for tanneries. Only employee wages are paid in pesos which, although significant, is not the highest cost for business. With most items bought and sold in dollars, it doesn't matter if the dollar peso rate is equal or is US$1:3 peso as it is at the moment. 'Good hide procurement has more influence on us than currency fluctuations', he added. Acuba Tannery Park At the moment there is no recognised tanning park in Argentina. However, things may be about to change with the establishment of Acuba otherwise known as Asociación de Curtidores de la Provincia de Buenos Aires. A group of tanneries led by Curtiembre Francisco Urciuoli e Hijos have acquired a 36 hectare plot of land next to the Riachuelo river in the Lanús district some 15km from the centre of Buenos Aires (see Leather International, May, page 6). The idea is to create a centralised tanning zone housing several tanneries in a cluster with the major advantage of sharing amenities such as effluent treatment. So far three tanneries have signed-up and Curtiduría A Gaita have a fully operational tannery on the site and a further two tanneries for Urciuoli and Giordano are under construction. Leather International was given exclusive access to the new Urciuoli plant, which will begin production towards the end of 2006. 'The new tannery will allow us to increase capacity from 1,300 hides and 2,000 splits a day to 4,000 hides and 4,000 splits per day', Juan Antonio Urciuoli, president, Curtiembre Francisco Urciuoli e Hijos. The new tannery is currently under construction but, when completed, it will be one of the most modern in the world with a purpose built beamhouse area located next to a very spacious finishing plant. Urciuoli produce high-end leather for leathergoods, footwear uppers and some garments. Approximately 50% of production is exported with major clients in the USA, Italy and China. Juan Antonio and his brother Franco are the second generation of the family to run the business. Urciuoli, who have taken seven hectares of the land available, have led the Acuba idea. The tannery will cover approximately 3,800 sq m with further buildings for raw materials and other storage. It is the intention that a common effluent treatment plant will be built on the land which all the tanneries will feed into once they have carried out primary treatment in their own plants. Urciuoli, who will regulate the strict limits of primary treated wastewater from the other plants, will control the secondary common plant. 'We have decided to relocate to the new site as our current tannery is located in separate buildings in a residential area. The new tannery will also allow us to increase capacity', says Urciuoli. He would not be drawn on the cost of the new plant but the building alone is a huge investment. They employ 200 people, and the workforce is expected to increase when the new plant comes on stream later this year. Curtiduría A Gaita (Pellegrini tannery) Located along from Urciuoli in the Acuba tanning district is the Pellegrini tannery. The company were founded in 1980 by Américo Gaita and still remain a family owned business. The Pellegrini tannery has built up in stages over several years with the first part open in 1996 and the latest extension completed in 2003. The tannery is owned and run by Américo Gaita and his three sons Javier, Gabriel and Silvio. The Gaita Group consists of two tanneries including Pellegrini and a further plant, known as Talcahuano, for cutting and stitching leather panels for upholstery and leathergoods. In total Gaita employ 330 people. Pellegrini boasts a single line of some 40 drums beginning with liming through to tanning and post tanning vessels. The group manufactures footwear upper, leathergoods and clothing leathers using bovine stock. Approximately 50% of production is for footwear with the remaining 50% being shared among the other categories. From the total production, around half is exported directly and 10-15% is shipped to the group's cutting facility at Talcahuano. Gaita have an impressive range of mainly Italian made equipment in the Pellegrini tannery which has enabled them to obtain ISO 9001 and 2000 standards and they are currently in the process of obtaining ISO 14001. According to Jorge Told, quality control manager at Gaita, they are hoping to break into the automotive and aviation upholstery leather markets in the future. 'The owners of the company are hoping to extend the tannery further to enter the car and aeroplane sectors. It is envisaged that a finishing plant for automotive will be completed by 2007-08 and facilities for aviation compliance will be ready by 2010', he said. The expansion plans are on the drawing board at the moment. Wyny takeover former GRD plant As reported in Leather International news, May, page 4, Mexican tanners Wyny have acquired the buildings, machinery and US$19 million world bank credit of the former GRD tannery located in the outskirts of Buenos Aires. The deal was finally concluded at the end of April. Wyny, who have existing tanning operations in Mexico and Brazil, chose the former GRD tannery in the Avellaneda district of Buenos Aires for a number of reasons. The group had been looking for an opportunity to expand for some time and saw that the redundant tannery was attractive because of its general good condition. It also has one of the best effluent treatment facilities in Argentina and has an experienced workforce, who share a similar culture with Mexico. 'We had been looking around for some time and we wanted to acquire a business which is close to a good raw material supply', Gustavo Trossero, general manager, told Leather International. 'Our aim is to invest in the infrastructure of this tannery and, for example, we are going to install the Cangilones drum system from Olcina over the next few months so that we can increase capacity.' Wyny aim to add a further three tanning, five liming and five new retanning drums in the plant as well as three green fleshing and two lime fleshing machines. Once the wet-end operation is up to speed, Wyny HTLG intend to get the currently redundant finishing plant running. Much of the equipment has been left in poor condition and some cannibalisation has taken place. Trossero hopes that the finishing plant will be up and running by the end of this year. Wyny will produce drum-tanned vegetable and chrome leathers at the tannery for the footwear, leathergoods and upholstery sectors. The long-term plan is to supply crust and finished leather for export and eventually cut and sewn panels for OEMs. The Wyny Group export to more than 26 countries worldwide. Current situation As time passes, the mini-crisis affecting raw material supply in Argentina is likely to diminish. The government's anti free-market decision to block exports of Argentine raw and wet-blue hides (except splits) does appear to be assisting the domestic industry based on the evidence of the companies visited. Tanneries are both busy and competitive with exports, especially to Asia, on the increase. Despite recent rises in raw material prices most tanneries appear to be busy and many are feeling confident enough to invest in new plant and equipment which is refreshing to see after the economic difficulties that the general economy has suffered in recent years. A number of medium-sized companies, including some of the above, are investing in the tanning industry thanks to Argentina's abundant source of quality raw hides which, in turn, is thanks to the population's love of meat. No doubt other second tier developing countries such as Brazil must be looking at Argentina's relatively weak currency against the dollar and the anti free-market government policies with a degree of envy at the moment. Argentina statistics No of tanneries: 100+ Raw hide availability: 16 million per annum Tanners Association: CICA (Cámara de la Industria Curtidora Argentina) Major tanning areas: Buenos Aires, Santa Fé, San Luis, Mendoza, La Rioja, Salta, Cordoba, Chaco, Corrientes, Formosa and Entre Rios Population: 39.3 million (UN 2005) Capital: Buenos Aires Area: 2.8 million sq km (1.1 million sq miles) GNI per capita: US$3,720 (World Bank 2005) Currency: peso (3.03 pesos = US$1.0) GDP (2004): US$153 billion ($284 billion in 2000) GDP growth (2004): 9.0% Annual inflation (2004): 9.2% New leather venture Wet-Blue International, based in Buenos Aires, Argentina, are offering their clients value-added procurement of processed and semi-processed leathers from Latin America. Founder Michael Rubinovitz uses the knowledge and contacts built up over his career in the leather industry, including KT Trading/ECCO Group, Worldwide Commodities International, Sadesa Group, and Schroder Europe. Until September 2004, Michael Rubinovitz helped start up and worked as sales and purchase manager for KT Trading in Switzerland. He had previously spent six years living in Asia and, before that, South America for a further five years. He maintains representation for Ecco's wet-blue production out of Indonesia and Holland to a number of Asian countries as well as South America. Rubinovitz discovered that there was a niche in the market for sourcing, quality control and logistical services for customers in Asia and Europe who were interested in purchasing Latin American raw materials. These companies needed someone with a knowledge of business culture in the region to handle these aspects for them. Wet-blue International's services were initially offered to those purchasing Argentine materials. The product range includes wet-blue hides, wet-blue splits, and crust leathers. The company now also work with suppliers in Uruguay and Chile and the service will soon be extended to Brazil. Rubinovitz describes WBI's USP: 'Commodities in South America need to have proper exit controls before being shipped. Our service saves companies resources and ensures the product description agreed on and the batches to be shipped should match up exactly.' In order to achieve this, WBI have their own team of three inspectors in Argentina and additional employees travelling to Uruguay and Brazil. Inspectors test samples from each batch and issue clients with an inspection report for every lot. Rubinovitz explains 'in light of the 'just in time' method of working which now prevails, customers do not want to hold inventories of raw materials which don't suit product needs. We pride ourselves on our attention to detail and precision of customer needs. Rubinovitz describes his team based in Buenos Aires: 'Our staff is multi-faceted, multi-lingual and highly professional. We are open to working with all customers who require this type of service. This is a growing business for the future.' For further information please contact mdr@wetblueinternational.com or [http://www.wetblueinternational.com]