Extracts from the SauerReport

This will force the raw exporters to either build/buy a tannery or to approach a contract tanner to have hides processed and exported in wet-blue. This would help the tanners buy the raw materials at cheaper rates than when they had to compete against the exporters of raw hides. Unfortunately, the demand for East African wet-blue hides is not as huge as it is for unprocessed materials because of high processing costs in East Africa.

A trader passed us this little survey he recently made on the tanning charges in different places. The cost of wet-blueing hides is about US$0.18 per sq ft in Kenya, $0.12 per sq ft in India, $0.10 per sq ft in Pakistan and $0.07 per sq ft in China. This explains why especially the Chinese prefer to have the raw hides as they save 11 cents per foot on the wet-blueing alone.

If we look at the stories from certain Asian countries (but China mostly) about vat increases or returns, custom book changes, new or increased duties, pollution problems etc, it becomes clear that life for tanners in that part of the world is not getting easier. It even seems that their own governments are against further development of the leather industry.

Whatever actions they are taking, they are almost without exception to the disadvantage of their leather industry and undermine the competitiveness of these countries.

There is a rumour circulating that the Chinese government is going to make a major cut in the vat refund to the leathergoods exporters (shoes, furniture, handbag, leather cut and sew, leather garments etc) starting July 1. The rumour says this is in response to the US government continuing to push China into appreciating their RMB currency and deal with the foreign trade imbalance especially with the USA.

Globally, with good quality hide prices already weaker almost everywhere and still dropping in many places, there is not much enthusiasm to buy. Regular business still continues albeit probably at lower prices. The fact is that many hides are now being sold below or even far below the prices officially quoted or offered.

China seems to have far less leather orders than last year. Since they bought far more hides than needed last year because of the vat story and based their numbers on their good business at that time, there could be truth in the story that many of these hides are still hanging around in China in wet-blue, crust or finished.This will further reduce demand for fresh supplies during the rest of this year.

Taiwanese tanners are facing the off-season and cannot get their June order books filled. They even say they would be happy if they could get enough orders to keep them busy for half of July.

Vietnam's leather footwear exports, January to April, increased by 12% to US$1.2 billion. One may wonder what the effect was of the punitive import tax by the EU because of the dumping of Vietnamese and Chinese footwear in Europe? Does it concern footwear not covered by the duties in question? Did the Vietnamese simply find other markets? Or has the trade found a way around the rules? In April alone footwear exports were US$40 million more than in April 2006!

In Argentina the cattle slaughter continues at a rate of around 13 million head/year which is about 7-8% lower than previous years due to the continued government meat price fixing policies. Heavy hides are more in demand than lighter ones.

Owing to a strong real the export business in Brazil is regarded by most as non-profitable. Raw material prices must go down in order to recuperate export sales profitability. A few tanners have already lowered prices in order to conclude fresh deals with overseas customers.

However, others are still inclined to believe that this is not the rule among tanners. The domestic market is reported as good but it doesn't mean that buyers are paying tanners' asking prices. Discounts have to be granted in order to secure sizable orders.

One of the top split tanneries in Italy reported starting winter season production one month later than normal and had already finished production one month earlier than usual (two month's orders less)! Italian hide tanners are still working from day to day. There are no long term programmes for most of them. That means they must have a few basic raw materials in stock to be ready for action in case orders arrive but at the same time it means the quantities they buy are always small. Still it is this hand to mouth business which keeps the trade going at present.

There are still few orders for the tanners in Spain. Those who work domestic hides for Spain or for export in raw or (more and more) in wet-blue are said to be the best off. The doubleface lambskin kill is now finished in Spain. There is still some merino production going on but the quality is going down. Sadly another long established tannery in Spain had to close down.

In Germany production at the slaughterhouses is low. This means that abattoirs are not making much money out of their meat business and are trying to get the maximum out of hides. They refuse to reduce their prices.

For South Germany the prices are still fixed. At the next negotiations we could see a reaction to the problem between a well known buyer of South German hides in Austria. The tannery in question no longer only works South German hides but also receives raw material from countries where hides may contain chemicals which according to the Hungarian authorities have polluted the river Raab which enters Hungary. On a political level this has reached the point where Hungary is threatening to take counter measures against Austria.

Although the situation in ex Yugoslavia is the same as in Western Europe (the prices at source are going down), the difference is that in Serbia, Bosnia, Montenegro, Macedonia and Kosovo it is very difficult to negotiate with the traders there. They do not care about the world market because they always have some new buyers.

One of them in Austria takes almost everything it can get in these countries and if this tanner (who has been accused of polluting) declines there are always Italian tanneries who will take it all. In Slovenia and Croatia the situation is a little bit better but their starting prices are usually higher. In July prices could possibly drop because of the August holidays.

According to specialists in the raw trade, business can only pick up once the exaggerated price increases seen this year have disappeared. This means it is not the same for each origin and those who have shown the biggest increases should show the biggest decreases. Among these we can certainly count the cheaper origins which were/are chased by everybody (Central America, Brazil and all African countries). Whether this is actually going to happen remains to be seen.

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