Extracts from the SauerReport

Australian hide prices are bound to follow the firmer trend in the USA. However, increased kill figures due to strongly increased meat demand could possibly offset too much of an upward pressure if bigger volumes of hides come to the market.

Small skin prices look firmer also. Increases are around A$1 on lambskins because of the arrival of the two major buyers China and Russia at the same time and on longer wool sheepskins because of the reduced kills. Abattoirs are only working a few days a week.

Most tanneries in Russia are working at full capacity and production is expected to increase.

Hard times continue for most of the Spanish tanners. Experts estimate that only about half of the 150 bovine tanners in Spain in the early eighties are left. For small skin tanners, the situation is even worse with only 25 left out of 150. Added to this there are a number of leather finishing plants which were not there 25 years ago.

The industry is waiting for the start of the winter season production but this will not be before May and will last no longer than two months, the same as for the summer season. This makes only four months of decent work per year. What to do the other eight months is the big problem.

Lambskins in Spain are 10-15% above last year's prices while those in Italy, Greece and France still cost the same or even less. Main buyer China is facing higher import costs and lower production numbers which will not increase the prices they are willing to pay. A number of garment and shoemakers have even closed down in China since they no longer saw a way to work profitably.

The Italian garment nappa tanners are going through very hard times with few orders to brighten their situation. Türkiye is struggling to meet the requirements of entry into the European Union and at the same time faces less demand for finished products from Russia. It is not expected that Turkish tanners will be prepared to pay more for their skins than they did last year.

So while the number of skins available will increase further when the big lamb kill comes, there will still be skins in Spanish warehouses of exporters who have not accepted the bids they got from Türkiye some time ago. Bids were refused because they did not cover the prices paid to the abattoir.

These traders chose to gamble for better prices in the future instead of taking the loss. Time will tell whether they took the right decision. At the same time, there are exporters who sold skins short before Christmas and who are now unable to buy at the prices they sold for at the time. In short, many skin traders are in an uncomfortable position.

In Ethiopia, after a long time of stable quotations, sheepskin prices were finally corrected downwards at an average of $5. One notes that there is no connection between the price movements of the high grades and the lower grades. Within the same size range, high grades can increase in price while the low grades come down. The only explanation is that it depends on supply and demand for a specific skin type and not on a standard calculation formula which covers all.

Wet-blue goatskin prices have increased by about 10% and are hard to find at present. Hide prices show less firmness than in the two previous months and could be called steady with a softer feeling.

Prices for Sudanese wet-blue hides have reduced considerably. This is probably the only country in East Africa where we see lower prices.

The most likely reason is that buyers are just not interested in wet-blue and wish to stick to raw hides (of which prices have not changed). Prices for sheepskins have reduced by about 10%. This reflects the much reduced interest in sheepskins. Goatskin prices to the contrary remain firm and unchanged like in many other countries.

In Brazil there is no news yet from the Chinese market where tanners are returning from their Lunar holidays. Most Chinese customers have been reluctant to validate the recent price increases asked by Brazilian tanners. This time they may have to adapt to the prices paid in Europe where demand for wet-blue hides has been very strong lately.

Prospects for the domestic market are also good. The year 2006 is both election and football world cup year and as a rule the Brazilian economy performs very well then.

For the moment, the higher asking prices from the meat packers for green hides combined with the weaker dollar against the real threatens the tanners' already lean profitability.

Early February saw the Ukraine close the last loophole to export raw hides duty free. On December 21 the ministry decided to temporarily exclude Raw Hides and Skins (customs codes 4101, 4102, 41039) from the Free Trade Regime with Moldova.

From now on the exporters will have to pay an export duty of 27-30% depending on the type of raw material.

The Ukrainian Government took this step after Moldova officially admitted the re-export of raw hides and skins of Ukrainian origin had become common practice.

As per the State Statistics Committee of Ukraine, during the first months of 2005 Ukraine exported 10,994 thousand tons of raw of which 10,912 thousand tons were exported through Moldova. This while the capacity of the Moldavian tannery is a maximum 4,000 hides a year!

Clearly the Ukrainian material was not used by the tannery but re-exported (mainly to Italy). Moldova had no export tax on raw hides. Ukraine may agree to sign another Free Trade Agreement with Moldova but this time it will be for the quantity needed by the Moldavian leather industry only.

Ukrainian tanners started getting hungry for domestic raw material after livestock numbers had fallen considerably in the mid-90s, while at the same time demand from Western Europe for raw material increased.

The government tried to establish order to protect its leather industry. First an export duty on raw was introduced, but exporters found ways to avoid those by shipping hides through countries with which Ukraine had free trade agreements like the Baltic States and Moldova.

Once wet-salted hides were excluded from the trade agreement with the Baltic States, the exporters switched to Moldova. Moldavian vets issued veterinary certificates for Ukrainian hides which turned them into hides of Moldavian origin.

In spite of the Lunar New Year lull in the market, very few are complaining. This is mostly thanks to Italy which seems to move forward on the road to 'better times' and shows interest in almost everything (except sheep and lamb?) if the price is right - which is not always the case!

All in the trade agree that 2006 started better than 2005 ended. The general mood is optimistic. The stronger dollar against the euro and other currencies will also help export calculations for Asian destinations. Provided it does not drop again of course. Prices worldwide show few signs of weakness.

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