Extracts from the SauerReport

Only one shoe maker in China has so far been granted 'market economy status'. This means that once the 140 million pair quota has been used, his merchandise will be subject to only 9.6% import duty while all others will have to bear to the full duty.

Further information concerning the import duties for exports of footwear to Europe shows that the proposed duty for 2007 is 23.5%. Chinese shoe makers were given only ten days to react and the deadline was July 17. Of the 140 million pairs quota, 80% will be for manufacturers already exporting to Europe while only 20% will be allocated to newcomers in this trade.

Chinese tanners seem to have bought many of the heifer hides which were so abundant in the USA during the past few weeks. Although the shoe business is still good it makes them less hungry now. They also feel prices might drop. Other reasons not to buy are the uncertainty about the order situation for the last part of this year but, maybe, above all it is the lack of profit margins in whatever they do. This even keeps tanners out of the market who clearly need to replenish their stocks (but who see little use in doing so if it does not bring in any money!). For many of them it is more important to use their energy in trying to get better prices for their leather than to buy more raw hides on which they can make no profit.

In Australia, the drought still continues its negative effect on the quality of hides and skins. Cattle supplies have reduced but so has demand for hides because of the holidays and thus the balance in supply and demand has not really been disturbed. China is concentrating more on wet-blue.

The Kenya Meat Commission (KMC) re-started operations at the beginning of July. Although an official announcement said the kill would be 1,000 head per day by the end of the month, it is said to be only 26 head per day today! Obviously there is still some way to go to reach the one thousand target.

An article in newspaper The Standard describes the actions by the Kenya Revenue Authorities and the Kenya Anti-Corruption Committee to clean up the KSh675 million (US$9.3mn) raw hide and skin export tax evasion scandal. The article describes how fourteen leading exporters had set up a kind of cartel together with highly placed officials in the Ministry of Livestock and Fisheries Development to deprive the government of export tax and VAT revenues in ways all too well known to the international leather trade.

For India there is good demand for cow lining from Hong Kong/China where this product has by now found a permanent market. Buffalo upholstery trade is brisker again but tanners in Southern India are now competing with their colleagues from the North (Uttar Pradesh and Agra/Kanpur) on the domestic raw hide market which pushes prices up. Goat and sheepskin trade is slow with Europe due to the summer holidays but is continuing on a limited basis with buyers in the Far East.

In Argentina, the situation on meat exports is slowly improving although nobody really knows where it will all lead. The government has agreed to make some concessions which is considered a positive move. Meat export markets will slowly be re-opened although this looks to be on a quota basis.

Hide supply is improving and raw prices have now stabilised after one and half months of reductions. Tanners hope it will soon allow them to work in a normal market situation with enough affordable hides available to them to allow them to work at full capacity.

The weight of animals coming in for slaughter has reduced further when compared to May. The average export price of Argentinian leather barely changed in the month of June (from US$1.88-1.87). In the domestic leather industry the shoe sector might have lost some of its activity while the upholstery tanners should be doing better now.

With American versus European hides, the general tendency over the last few weeks has been a softer market in the USA and a steady to firmer market in Europe. While the situation in the USA does not seem to change, we note some 'cracks' beginning to show up in certain European hide prices (UK, Spain and maybe others).

In Europe, although business is far from wild it seems to continue on quite a steady and limited volume basis showing little of what is usually called a 'summer slump'.

Shipments to Asia continue to take hides out of the market and prevent prices from seriously dropping. Market prices hardly change and the dollar/euro rate together with the going interest rates remain the main factors deciding on whether business possibilities are seen as attractive or not.

In Italy, a number of contract tanners have enough work to continue working all through the month of August and completely cancelling holiday closure. This may lead to continuing business and shipments during the holiday month and it will further support prices of hides in Europe and possibly elsewhere also.

Italian calfskin prices increased another 10 cents due to continuous strong demand from the shoe industry but ox and steerhide prices remained unchanged.

Earlier in the year the kill was low because of the low prices for the animals offered to farmers but now it is because of reduced meat demand and increased cheap meat imports.

In Spain, the very dry weather during these last months had a bad influence on lamb slaughter and thus on skin supply (animals don't reach their slaughter weight). This meant that there were not enough lambs around to satisfy demand for meat.

As a consequence slaughterhouses became less critical in the selection of breed and quality. This can have a negative influence on the quality of skins as well. Meanwhile, orders for tanners are reducing further with the approach of the holidays.

Bovine hide tanners are finishing their orders which are not too bad at present and kept them busy till the holiday closures. Few, however, know what the situation will be when they return to their factories in September. Meanwhile cattle slaughter in the country is slow and hide prices remain firm.

Before the seasonal shutdown, wet salted hides were sold at lower prices than before; maybe a 'holiday clearance'?

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