Extracts from the SauerReport

The present system allows for deferred VAT payment. This means nothing has to be paid when importing. The difference between 17% and 13% (4%) is only due upon re-export. As many goods never physically left the country tax evasion was common practice. Although nothing has been decided yet, the new rules would demand 22% more cash on the table on the day of importing the goods to finance the import duty (5%) plus the vat (17%). Who has that money? It is known that the banks are only tightening credits not expanding them!

The objective of the government is to stop cheating on taxes and duties but also to avoid tanneries moving inland from the coast to avoid the strict anti-pollution rules in the coastal areas. Moving inland would probably mean polluting the rivers closer to the source and all the land downstream.

Hence the government, directly or indirectly, is promoting imports of wet-blue. But blueing in China costs US$7-8 per hide against around $12 in the USA. Thus importing wet-blue instead of raw will seriously damage China's competitive position. If the Chinese government decides importing wet-blue is the solution to their problems then who in the world has the capacity to tan all the hides China needs?

Losing part of its competitiveness could result in the loss of possibly millions of jobs in China. And if the government sees that happen would that not make them change their mind again? Everything is possible in that country. It is also clear that every new rule which costs money will lead to new tricks to avoid paying or to recuperate the new losses elsewhere. Already people are talking about an increase in under-invoicing, downgrading selections/values etc. But will everybody be prepared to do that? We have seen the increasing risks involved if one is caught. All in all interesting times ahead which could change the position of the entire Chinese leather industry and thus of the rest of the world.

In addition, the domestic cattle kill in China is expected to be lower than last year.

In East Africa, the hide market continues on its what some call 'disastrous turn' since the Chinese stopped buying. There are shippers in Kenya who believed Chinese buyers would simply take their hides in wet-blue now. They were very disappointed to find out this is not the case (although at an absolute garbage price the Chinese are no doubt prepared to look at it...). It was also a very naive thought of the exporters since we have seen this happen so many times before.

Buyers of raw hides are not necessarily buyers of the same hides in wet-blue. In the case of the Chinese, their simple answer is that they can tan cheaper than the Africans so for them there is no interest to buy in blue. They simply buy raw somewhere else if they need it (and even that does not seem to be the case today). Of course the new rules under discussion in China could change all that. The problem for Africa is that there are no other buyers left outside China except Pakistan and, maybe, India. The good news is that the strong demand for goatskins persists and that there is even demand for wet-blue sheep from Italy again.

The Botswana Meat Commission are attempting to sell their tannery. A huge build up of sludge is deterring buyers as clean-up costs amount to more than the tannery is worth.

After five months of relative stability in Argentina, local hide prices started to come down. Average reductions are about 3% in pesos but over 6% in dollars. The kill in October was 2.6% higher than in September and this and a stronger dollar are said to be the main reasons. The average weight of animals which made the trip to the abattoir in October was just 340 kilos, the lowest this year.

In Brazil, the ever weakening dollar is of much concern and F&M disease is still an issue since almost 50 countries have suspended imports of Brazilian beef. The raw hide price in Southern Brazil went up but on the bright side we can report a better demand for Brazilian wet-blue hides by Italian customers.

Prices have hardly changed over the past couple of months in both north and south Germany. What has changed though is the structure of the raw hide trade at the source. Since the meat group Moksel (over 200 companies) took over hide trader Gruenberg and also Suedfleisch, the group is said to now handle about 85% of all south German hides. Less attractive is the new situation for hide traders who were previously supplied by Suedfleisch and are now forced to go abroad (Austria, Switzerland etc) to find what they need.

In the past suppliers sold nothing but their own hides. Everybody knew what they looked like every week of the year and where they came from. Now hides come from left and right and may no longer represent the same strictly defined characteristics as before. For the very same reasons, tanners may no longer be prepared to pay the same premiums for specific 'names'. So who wins?

A recent shoe fair in Athens showed again how depressed the footwear industry is in Greece. Over the past decade, production dropped from 45 million to just 5 million pairs! Raw material and wet-blue prices remain unchanged while trade is very slow. More and more Greek hide exporters are seen in Italy trying to sell their merchandise, no doubt because of the diminishing market back home.

In New Zealand, the first new season skin prices are below those when the old season terminated. This is very unusual as producers try to maintain the same price levels when moving from one season to another. There are two explanations: 1. The traditional lack of interest from the nappa tanners for the first new season skins because of quality and size. 2. Lack of interest from China for doubleface and carpets.

The Chinese usually buy these skins wet-salted at the start of the season but this time volume has been low.

The low prices asked did not have the effect sellers were counting on. Instead of attracting buyers, the much reduced asking prices were seen as a sign of weakness. It convinced buyers that it would be a good idea to step back and hope for further reductions.

Unfortunately, there never seems to be an end to the bad news coming from Europe's second biggest tanning country, Spain. Top quality footwear manufacturers Yanko registered for Chapter 11. Big lambskin tanners Genis Antel announced they will stop production in two years maximum. Pielespaña in Barcelona will probably not take place anymore.

Chemical company Curtex, part of the BASF group, will close its facilities in Spain in two years max and move to India. In short the future of the Spanish leather industry as a whole looks bleak.

The Japanese Food Safety Commission has finally declared American beef of animals under 20 months of age safe, leaving the way open to a resumption of imports. The opening of the Japanese border will, of course, have an influence on slaughter and hide availability in the US although a consumer poll in Japan suggest that 70% of the population don't want it back!

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