Extracts from the SauerReport

European hide sellers fear that on top of the weak dollar, US hides are also showing a drop in prices and may become so attractive to European tanners that their own European hides will become even more difficult to sell.

India is finding that winter orders are coming in too slowly and it is feared this will cause serious problems when they all finally arrive at the same time. A revival of activity was expected directly after the APLF but this did not happen.

In Egypt a strange feeling dominates the leather industry. Every one is wondering how long the market instability will last? Good business news is getting rare and expectations and hopes are often contradictory. Raw hide prices are retreating; exports are not at the same level as last year; the domestic market is relatively calm and sheep and goatskin prices have not changed.

In Sudan local prices for raw hides continue to rise but the same now also starts for sheep and goat. The slaughter rate is still going down and most tanneries are working at low capacities. No stocks of pickled and wet-blue sheep are available but there is good demand for cow hides (raw, dry salted and wet-blue). Sudanese hide and skins exporters and the Chamber of Leather & Footwear are selecting a committee to plan for a new area to concentrate the leather industry in North Omdurman (Khartoum province). The border trade in raw cow hides, wet and dry salted, increased between Sudan and Egypt, and this is one of the main factors which pushes local raw prices up.

One of our readers wrote that the market is on fire in East Africa. The Chinese tried their best to reduce prices during the Hong Kong fair but were unable so they have started accepting high prices.

There is a rumour in East Africa that the duty on the export of raw will go up to 40% (from the present 20%) and that shippers are desperately offering high prices in the local market to buy and ship as much as possible before this measure becomes reality (if ever it does). This is creating even more havoc in the market.

In Brazil, the raw hide market has been stable but tanners are worrying over the exchange rate. Though the selling prices for wet-blue hides have reached an all-time-high, the consensus is that more money is needed in order to make the companies turn a profit.

The latest announcement from the Chinese authorities, Article 17, seems to imply that those tanners who are producing leather for the big shoe brands from imported wet-blue or raw hides, will not be able to export their leather to shoe factories outside China, after April 5, 2008. The other tricky issue is that some tanners prefer to export finished leather to Hong Kong, then re-import the same leather under the 'process trade' and undervalued (by footage or weight basis) for shoe makers within China for shoe making and export. Of course some leather might be 'leaked' to the domestic market (with windfall profit because on undervalued imports one pays very little import duty and vat). The 'Process trade' import also has to pay 0.3% commercial inspection fee and if one imports a lot, under-valueing can save tons of inspection fees. If one transferred this finished leather to domestic shoe makers according to the 'custom book' procedure, the price of the leather becomes transparent which would not be acceptable to the shoe makers. All irregular practices of the last twenty years would come to the surface and there would be criminal implications. This entire subject is a big taboo!

A big tanner might choose to import the raw hides as normal trade (not 'process trade'), pay the 5% import duty and 13% vat. They then export the finished leather and get the 8% vat refund which now sounds much more simple. When importing wet-blue under the 'process trade' for finished leather export, one does not pay the import duty nor the vat but one has to pay $5-6 more per hide since blueing costs outside China are that much higher than within the country. The reduction of 17% import vat on raw hides to 13% does makes calculations more favourable for straight forward import under normal trade rules for raw hides.

Furthermore the Chinese government is contemplating abolishing the 'credit' of import duty and vat on wet-blue in the 'process trade' and asking tanners to put up real money as a deposit to get it refunded when products are exported. If this is carried out, it would certainly discourage tanners from importing wet-blue. Since they will have to put up cash in advance and after April 2008 cannot export the finished leather, they might continue to import raw hides.

European trade is almost paralysed by the further dropping US dollar. Sales to Asia are becoming ever more difficult if not impossible. Since buyers/tanners have not seen their finished leather sales prices increased or increased enough, their bids in dollars barely change and are worth less to European sellers every day.

Even Euroland hides to Euroland tanners sell only with difficulty and then mostly to buyers who simply cannot use other raw material. Other Europeans try to buy in the cheaper dollar quoting countries to benefit from the dollar exchange rate. Logically prices in those countries (Brazil for example) are going up all the time now that interest for their goods is so strong.

We hear of tanners who buy hides in dollars at a price at which they make no profit but at least allow them to work. They hope that by the time they have to pay for their raw material the dollar will have dropped further. The difference in the exchange rate will then be their profit. A risky operation.

The wet salted hide market in Kenya and Uganda remains firm with nothing to offer and lots still to ship. The difference with last year is that at that time the Chinese and Pakistanis were basically the only buyers but now we have the Italians, the Turks and others as well. Italians often offer the best prices.

Also Ethiopia finds new buyers for its wet-blue hides. Most remarkable are the Russians. The Ethiopian government is promoting the export of crust instead of wet-blue and some fear measures might be taken to discourage the wet-blue export by increasing or introducing taxes, etc. The country also uses more and more leather in its own shoe industry.

For Spain doubleface sales continue to be poor and the outlook is not good. The good news is that skin prices have come down at the abattoir by at least one euro. The Turkish price idea for Spanish doubleface is e11 cash. Quite a difference with the asking prices in Spain based on today's abattoir levels. However, if the Turks want to do their job and tan skins they will have to buy them but so far no decisions seem to have been taken.

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