Overcapacity in the industry

For some time, people have been telling me that overcapacity in the tanning industry is the greatest threat there is to long-term profitability. It has been postulated that if 50% of tanneries were to close, there would be enough business left for the remaining 50% to make a reasonable profit margin. The sad thing is that if an industry finds success anywhere in the world, many will follow and set up rival organisations until there are far too many chasing too few raw skin supplies. It happened in Ethiopia. In the days when the state controlled everything, there were very few private tanneries. But Ethiopian raw skins were globally sought after and once the drive to add value to the skins before exporting them got underway followed by mass privatisation after Mengistu's departure, new private tanneries proliferated with the consequent shortage of available raw material supplies. A different situation but with similar results has arisen in South Africa where import/export regulations surrounding the automotive industry have provided beneficial conditions for automotive upholstery leather production. Many of the biggest and best-known names in tanning automotive leathers have set up plants in the country but there is no question of the country being able to supply sufficient quality raw hides to fuel production. The massive overcapacity in the tanning industry has meant that tanners are under pressure from traders who want to maximise the value of their hides at the one end and from the finished product manufacturers who want to keep prices low at the other. I heard of one Japanese manufacturer who told a South African ostrich leather producer that he had made a really big mistake in trying to get the price down. In fact, he concluded, the ostrich producer should have increased his prices in order to keep the product exclusive. By allowing manufacturers to force down the price of leather, we become flooded with low- and medium-priced leather which is no longer appreciated as the luxury item it should be. Speaking to the International Council of Tanners, Adam Hughes, BLC, said that quality leathers were no longer the main requirement. In today's market, he said, the real issue was being 'fit for purpose'. If this means cheap leather items with a tough protective plastic film on top which can be worn for a short time and then thrown away, then the industry needs to seriously consider what they have actually lost in terms of status and how to elevate leather back to its former exclusive glory. It must be remembered that fundamentally, a hide has a negative value. To slaughterhouses and meat packers, it is the residue of their trade which must be removed before putrefaction makes it a health hazard, or the necessity of incineration raises the spectre of huge energy costs. As Ron Sauer said recently, they just want the 'dirty stinking' hides taken away and will enter into confidential, sometimes long-term, deals to make sure this happens and 'hides just disappear quietly'. Elton Hurlow of Buckman Laboratories believes that 80% of big packer hides are sold well in advance on long-term contracts and only 20% is traded on the open market to take advantage of price rises and currency exchange rates. To the traders, on the other hand, the value of the hide is how much he can get for it. However, according to Don Ohsman, more reports are being heard of tanner difficulty in moving high end AB grades of leather as the continuing demand for lower-grade and lower-priced leathers remains. Which confirms the belief that leather has, to a large extent, lost its prestige. Ohsman also states that while slaughter rates in the US are down, demand continues to be below supply, forcing prices still lower. One can only assume that tanners' business must be really bad since raw hide prices have never been more attractive and still they are reluctant to buy. Shelagh Davy