Extracts from the SauerReport

On the up side, the US consumer confidence index climbed to a two and a half year high. People feel a lot more at ease (lower energy prices, more job security, stable interest rates etc). This is good news for the leather industry.

A year ago, the Argentine government prohibited exports of bovine meat. Slaughter dropped by 30% and hide prices rose 50% and various tanners closed or reduced production. 2006 slaughter ended with an overall decrease of 12% in relation to 2005. That is a shortage of 1.8 million hides felt mainly during the months of April-August.

January was a good month for Brazilian tanners with Chinese and Italian buyers active in the market and contracts at reasonable prices. However, as far as February is concerned, the Chinese are now preparing to close their factories for the Lunar holidays. Besides that, the dollar has lost some value to the real and may jeopardize tanners' profits in the short term. The raw hide market has been stable and should remain this way for the next 30 days.

Upholstery tanners in Europe and the US, who would never have considered Brazilian hides a year ago, are now buying because of the very high prices of the (North American, European) raw hides they used to work. That is why certain hide types like heavy bulls from France or South Germany have practically lost their long time customers and are having problems finding new outlets. The old time buyers not only look to Brazil but also to South Africa and other less expensive origins.

According to a new report on the production of leather garments in China, 87% of mainland China's leather garment manufacturers plan to raise export prices in 2007. 'Due to higher import taxes, the price of raw leather shipped into mainland China is projected to rise this year', said Global Sources' general manager of content development Michael Kleist.

'Manufacturers also expect to be hit by the revaluation of the yuan and rising labour costs. Chinese manufacturers told researchers that they plan to move away from their traditional export markets such as Russia in order to target new higher end markets such as the EU and USA.

The majority of Chinese tanners are holding back. They cannot afford hides that cost US$80 and more. However, another report tells of a group of Asian tanners visiting the USA who were fighting to get as many hides as they could and finally bought 150 containers of heavy hides at $84 delivered. They are now buying the seasonal Chinese domestic hides to fill their drums. Imported hides with the 5% import duty and 17% vat on top of the purchase price are more expensive than the Chinese domestic hides.

The 3% currency appreciation and reduction of 2% on vat refund, hit export orientated tanners hard in 2006. Life will be even tougher in 2007 because these tanners cannot get enough for their leather to cover the raw material increase. In some towns, tanners get their vat refund within one month, while in other areas they may have to wait six months. This creates a cash flow squeeze as well.

At the leather fair in Chennai, India, it was reported that Indian tanners, who were sitting on huge stocks of high value items such as glazed kid, had managed to sell their stocks. They have started asking for offers for small sized high grade wet-blue goat. People also noticed some signs of revival for sheepskins.

Ever more countries in Africa are unable to ship their pending contracts most of which have China as final destination. They simply don't have the material. Tanners and traders are not inclined to buy more from people who cannot even ship their old pending contracts. Prices have risen so much in the meantime that certain exporters in Africa bluntly tell their buyers to forget about the old contracts because if they ship them they would go broke.

The first week in February, in Rwanda, was characterised by a total unwillingness on the part of buyers to even listen to offers for skins, goat and sheep alike. Exporters have sent many offers but nobody even bothered to answer, let alone counter bid and order. That leaves the situation unchanged for skins. Hides still appear to be on the Far Eastern menu and are steadily sold more or less at asking prices.

Strange news arrives about the Kenyan goatskin market (and possibly other East African countries). Exporters seem to have suddenly reduced their bids to local sellers by 15-20% for reasons yet unclear. This while there still is demand from Italy for the better qualities and from India for the low grades.

Little good news is coming from the leather industry in Spain. Best are the few tanners operating at the top of the quality range but they are mostly working domestic raw material now and import very little. Many tanners have reduced production or even closed down. On the lamb and sheepskin side there are hardly any tanners left and among these more sad stories are said to come.

Since the eighties shoe production has about halved from 300 to about 150 million pairs. Previous buyers who moved to Asia have come back because of the problems with quality, timely shipments and the further usual stuff.

Traders say the cold weather arrived too late to be of much use to the doubleface industry. There is still too much stock of garments in Russia and elsewhere in Europe to create more demand. Turkish tanners are now very quiet on the buying front. It might pick up in February but if so probably at lower prices. Türkiye is said to have stopped the import of Greek lambskins for sanitary reasons.

Everybody complains Australian skins are too expensive but price levels still continue to defy gravity. There appears to be absolutely no relationship with Australian prices to all other origins. China continues to be the main market driver right across the board with Russia only just competitive in the mouton area despite the unseasonal warm winter.

Turkish tanneries are experiencing a new production resurgence as they have found a ready market for mouton crust for Russian manufacturers. The import of Turkish crust now surpasses Russian raw imports. This trend is expected to continue although the Russian tanneries now complain their wet sections are idle as a result.

In New Zealand, skin prices continue to rise rapidly and there is no end in sight. China continues its imports of huge numbers of raw skins. About half of all lambskins exported in December were exported raw and this still goes on!

Producers enjoy very strong demand but already have problems in keeping up with the shipments of their pending commitments. All prices are up.

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