Extracts from the SauerReport

China's inflation rose to its highest level in more than 11 years in January after devastating snowstorms worsened food shortages and analysts warned there might be sharper increases to come. Consumer prices in January climbed 7.1% from the same month last year, driven by 18.2%+ in costs, the National Bureau of Statistics reported.

Guangzhong migrant workers went back to the factories after the Lunar New Year to find that a few Taiwanese owners had decided not to return and had abandoned their factories. They still owe the workers their pay. Most factories re-opened for business but the FuJian Ke Mu tanning zone was shut down by the local EPA (environmental police) while the tanners there are working to improve their effluent treatment facilities. An opmistic owner says he will get his factory re-opened before the end February.

Another major tanner, not located in the same zone but just a few blocks away, saw 50% of his capacity closed down (or did he produce double what his pollution plant could handle before the closure?).

The severe winter and snow storms which hit central and southern China produced US$15.4 billion worth of damage. Lots of piglets froze to death. This is going to create tremendous difficulties for pigskin tanners who already faced historically high prices for raw material in 2007.

Upholstery tanners in China had a tough time in 2007, partly because the price of their staple diet of Brazilian wet-blue remained high, partly because competition is keen and partly because US furniture business is slow.

A few defaults on contracts by US furniture makers have already caused million dollar losses. One of the bigger producers in China had to do a major lay off of workers because of this. People anticipate there will be more fabric furniture orders in 2008 than orders for leather furniture.

Hong Kong television reported that the Hebei government has quietly asked tanners to shut down their factories from May until after Olympic Games. (This sure is one way to fight the pollution!).

One may hope foreign reporters do not wander further south to Henan province where there are a lot of lamb and sheepskin tanneries with very inadequate effluent treatment. Most of the bovine tanners in Hebei use local hides and some non kosher ones import hides.

The measures are not just concentrating on the tanning industry but also other industries with high energy consumption or pollution. It is rumoured that even smoking may be banned during the Games.

A recent report says the import restrictions by the European Union on the import of Brazilian meat have resulted in a slaughter reduction of 30-50%. This contradicts a previous report which stated that Europe was not that important in volume as an export destination. However, this will surely avoid green hide prices dropping for the time being.

Despite members of the industry voicing concerns late last year that leather production in Brazil was likely to fall due to a decline in beef consumption, their fears have not yet been proved valid as exports continue to climb. According to the Association of Tannery Industries of Rio Grande do Sul (AICSul), leather exports reached US$183 million January, 4% higher than the same month in 2007. This, in part at least, reflects the industry's move to higher added-value products as wet-blue exports actually declined to 939,000 pieces, down from 1.6 million in January last year.

According to local media sources, a company in Buenos Aries, Argentina, lost approximately US$2 million worth of finished leather, destined for export to China, after a group of about 20 armed thieves overcame security guards and workers before making off in five trucks. This latest crime is one of a spate of similar robberies which appear to be targeting leather companies.

Several weeks ago another local company was the victim of a similar crime, although the leather was less valuable as it was unfinished, and the police did recover the stolen goods.

Uruguayan tannery workers downed tools and stopped work for 24 hours on February 13 in protest over their employers failure to comply with a salary agreement signed last November. Under the deal, tannery owners agreed to increase wages, and backdate the rise to July 2007.

However, this has not been the case despite the Tannery Workers Union (UOC) having held meetings with delegates from the Leather Industry Chamber and National Department for Employment to discuss the overdue pay.

The UOC claims that eight tanneries have failed to implement the collective agreement and that some tanneries also still owe employees their Christmas bonus of an extra month's salary at the end of the year as well as holiday pay. At one tannery some 16 workers are not even receiving their monthly salary. The UOC is now demanding that a negotiation table be set up in order to discuss the crisis and workers are threatening to occupy tannery buildings if no solution is found within the next few weeks.

News on Iran says the country has never seen such cold and snow in 50 years. The capital Tehran has seen temperatures of minus 17-20°C which blew all the waterpipes in the tanneries and the machines are frozen. Most tanners have been closed for almost a month now but the weather situation is expected to improve soon.

There is good demand for all leathers from a strong local market and for wet-blue sheep from export markets. Prices exploded. Strong domestic demand for leather garments is reported (probably because of the cold). Good local demand for shoe upper leather also. Basically the Iranian market is getting firmer every day and prices obtainable at home are better than from export markets.

The order situation in Spain is not improving. Many many samples are being produced but the final orders remain mostly absent. Some say if they do not arrive within 4-6 weeks the problems will be very big in the industry (where they are not big already!). A seller of hides to the Lorca region said that while he used to sell four containers a month to a specific tanner there, he has not sold him one single container so far this year!

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