Mixed fortunes for tanners18 June 2005
The global problem of increased competition from China, combined with domestic issues of smuggling, serious cashflow difficulties and the impact of recent environmental legislation have not helped Mexican tanneries. Production levels are currently running at just 40% of the 90,000 skins per day installed capacity. The illegal import of low-priced footwear and leathergoods has been a major threat to the industry in recent years, encroaching on the domestic market. This phenomenon has been particularly difficult to control due to the extent of Mexico's borders. However, national and local governments have been working alongside private enterprise to combat smuggling and these efforts are reported to have had a positive impact. Optimism There is continued foreign interest in the Mexican industry. Although this year's Anpic fair was smaller than previous years, visitors and exhibitors felt the fair was more professional and better organised. Exhibitors reported a smaller number but better quality of visitor and generally felt that more orders had been taken this year. Agujetas Andina reported that diversification away from the staple of footwear is also boosting the industry and that 'automotive upholstery leather is making the leather industry in Mexico stronger.' The company added that better co-operation and communication between the sectors was leading to encouraging signs and predict a 15-20% growth in the industry in 2005. Sergio Gonzalez, president of Anpic, the Mexican national association of suppliers to the footwear industry, is also optimistic about the future and states that there has been a marked rise in the nation's leather and footwear sector in 2004. He attributes this to the strength of the euro, which has made Mexican products more competitive when compared with Spanish and Portuguese goods, alongside the stability of the Mexican peso against the dollar and low inflation. Mexico's political evolution has played its part in this. According to Gonzalez: 'Democracy has helped us by separating industry from the political parties. Recent legislation is helping the sector to evolve.' Gonzalez also believes that consumers are beginning to recognise and acknowledge the high quality offered by Mexican products. Luis Rodriguez of Hormas el Arbol believes that the best way for the Mexican industry to defend itself from competitors is to concentrate on a blend of fashion, quality and service. An important Anpic initiative focused on fashion. Eduardo Hernandez Padilla, president of the organising committee of the Anpic fair, told Leather International that the 'Salon de moda'which made its debut at this year's edition was put in place to help the shoe sector understand current trends, enabling it to compete on a level playing field with the rest of the world. The Mexican industry is creating its own identity and styles but does take into account the colours and trends of the international scene. Proof of this is the diverse range of Mexican-made products on display at the fair. While he was encouraged by the high volume of orders taken at this year's Anpic, he fears that a large number of companies lack the credit facilities to fulfill these orders. Cashflow has been a longstanding problem for producers across the country. CICUR Edgar Valenzuela García, general manager of tanning industry association Cicur, in the state of Guanajuato, said that rationalisation has been a constant in the industry in recent years. There are 798 tanneries in Leon, 157 of which are working only seasonally. However, conflicting reports suggest that the number of working tanneries in Leon could be as low as 450. The number of tanneries operating in the whole process has declined to 354, due to government demands for higher ecological standards. Permits are no longer being granted for whole process tanneries in urban areas. Over the last ten years, environmental legislation in Mexico has been gradually getting stricter. Valenzuela also identified the need for an effluent treatment plant in Leon. These factors have led to relocation of many tanneries to specific industrial parks around Leon. In terms of environmental safeguards, the first stage of a CET plant for the treatment and recycling of waste is underway. Discussions are underway with BLC to construct a pilot gasification plant in the Leon area in the near future. Finance is currently being sought for the project. Valenzuela believes that the outlook for 2005 is very good. According to Cicur, the advantages offered by Mexican leather include: flexibility to accommodate the customer's needs, proximity to the USA, the Mexican industry's main source of hides, as well as improved wet-white production. The main destination for exports of Mexican leather is the USA with 79%, worth US$190.2 million, then Hong Kong with 4%, with a value of $9.27million. The total value of leather exports in 2003 was $241 million. Leather exports from January to December 2004 totalled US$294.9 million. This compares with imports of US$232 million. Valenzuela states that integration is a key objective for Cicur members. In the last 18 months, Mexican business leaders have begun to work together to share machinery. There are currently six groups around the country working like this. Other associations have come together to target certain export markets. Mexleather, a union of nine tanneries, is a prime example of this. Valenzuela cites further integration of small and medium sized companies, to raise the level of competitivity, as a key objective for the future. Wyny Wyny are among the world's most important vegetable tanners. Production is based on three main lines including water resistant leather soles, finished leather for ladies' footwear and strap leather for belts and leathergoods. Wyny's target market is for mid to high range bags at $500 plus, a growth area for Mexican tanners due to the strength of the euro, which has been detrimental to Spanish and Portuguese producers. Wilmar A Nienow believes that in terms of footwear, the northern European market has potential for growth. Although 30% of production is for the national market, Wyny sell to 22 countries and their exports have been boosted by increased sales to the USA and a commercial treaty with Japan, which allows Mexican companies to sell 250,000 pairs tax free until March. The Japanese EPA (economic collaboration agreement including free trade agreement) concluded in September 2004 came into force on April 1, 2005. A feature of the Japan-Mexico EPA is that a zero tariff frame is increased by 20% every year with a view to abolishing all tariffs within ten years. The major players in the Mexican industry are being creative about markets and exploiting every natural advantage they have. They are responsive to world pricing structures as the strong euro has made Italian vegetable tanned leathers less accessible. As a result Mexican companies have moved into the gap in the market. Production of automotive leathers in the US has gone down, so Mexican companies have looked to meet the excess demand created. Nienow believes this to be a common theme. In his eyes the sector in Mexico is being revitalised by a new generation of professionals who are better trained and more open to change than their predecessors. This new generation is more willing to get involved in the global market and are constantly thinking up new ways of competing with those overseas. Suelas Esmar Suelas Esmar are sole leather manufacturers based in Leon and employing 120 people. Production levels are 3,000 skins per week, 20-30% of which is exported with the majority heading to Hong Kong, USA and Central America. They describe 2004 as one of the company's best years yet and saw exports markets broadened to encompass Hong Kong, USA and Europe. Their share of the national market also grew, especially in Mexico City and Guadalajara. Ricardo Tavarez Moreno, sales, told Leather International that the national market has shrunk slightly in recent months due to changing fashions as well as cashflow difficulties but the market is traditionally slow at the beginning of each year. Tavarez feels confident about 2005 and, to demonstrate this confidence, the company have ordered five new drums to enable them to increase production. Pielsa Pielsa, founded in 1972, produce high fashion footwear leathers. Production is based in Leon, where the company employ 42 people. Pielsa work exclusively with bovine hides producing 500,000 feet per month, destined mainly for the domestic market. Pielsa are one of the numerous tanneries who currently export indirectly. Since 1995 they have been producing leathers for companies who export finished goods to markets such as Australia, Canada and the United States. Pielsa's Oscar Obregon believes that 2004 has heralded the Mexican industry's return to its former status as a global power and that leather production has matured and developed. He states that although some companies have disappeared, the majority have become stronger. 2005 is also looking good. Pielsa's negotiations at Anpic have been successful for them. The company have been performing well against foreign competitors in terms of quality and research and development. They are looking for niches in very specialised markets, eg aniline and full grain for high price shoes. Obregon believes that Mexican leather would benefit greatly from an image campaign in China as it is not yet known in that market. With a view to accessing new markets, Pielsa joined Mexleather, a company comprised of nine tanneries from the Guanajuato region. Together these tanneries have been operating in China for the past 18 months with offices in Donguang and Wenzhou and are planning to expand into Vietnam and India. The union was created to offer reduced operational and sales costs to members who would not have been able to operate in China individually. It enables each company to offer the necessary volume and price required by clients in China. In terms of marketing, Mexleather represents members at the major Asian exhibitions and also have Chinese partners who operate as sales agents. Carlos Pons Gonzalez, company president, describes associations of this type as 'the only way for Mexican tanners to attack the high volume markets.' Pons believes that Mexleather offers similar products to European tanners with a much more competitive price tag. He predicts a growth in sales for 2005, particularly in China, Vietnam and India. Stoever Chemicals company Stoever are also focusing on the Asian market. They have developed a unique proteinic filler which Gerardo Stoever, director, claims has become a substitute for more expensive European filling products, upgrading leather, improving filling quality and resistance. The product has been well received in China, with 90 containers recently being shipped. Curficen This family business, established over 30 years ago is based in San Francisco del Rincon, Guanajuato, and employs 35 people. The company mainly produce footwear leathers but furniture upholstery leathers account for 10% of production, all made exclusively from Mexican hides. Curficen's representatives saw lots of buyers at Anpic, which had been very positive. As for many small tanners, 2004 was a bad year for Curficen economically in terms of cash flow and production. Alejandro told Leather International that Curficen would be able to operate much more efficiently if clients paid on shorter terms and would greatly benefit from financing and credit facilities. They expect 2005 to be better with 20% more production and sales this January-March than in the same period last year. Currently involved in indirect exports, Curficen's aim for the coming year is to export for themselves and develop a firm client base, preferably in euro or dollar economies which would reduce their dependence on the peso. A further challenge is the strategy of change within the company to standardise production all year round. A stable supply of raw materials would also be beneficial. Curficen currently face a situation where they have greater demand from clients that supply of raw materials. The Mexican leather industry is striving to adapt to the new circumstances of the world market, and has taken some important steps to ensure its survival in the short-term. Government support on matters such as cashflow will be vital in confirming the nation's status on the world scene if the industry is to thrive.