China is still where the action is

In this business China is the dominant player, which is why the ACLE is so important. Despite the ‘global recession’ tanneries are still springing up throughout the country and companies such as Henan Prosper and Scottish Leather Group (via jv’s with Colomer and Zibo Polygrace respectively), SRL and Tyche are all in the process of building major new plants in China, which will begin production in the next 18 months (see news). Clearly, these companies see demand for leather both internationally and domestically continuing to grow and are positioning themselves to be in the right place when foreign markets recover and domestic consumption grows further.
There is definitely plenty of evidence to support the view that the Chinese consumer will often pay higher prices for branded leather items such as UGG boots than an American consumer would and that many cars and SUVs made or sold in China have a much higher proportion of leather than in the rest of the world. The appetite for leather in the mind of the Chinese consumer looks good for our industry.
Those with the biggest smiles on their faces in Shanghai were the hide and skin traders. With Chinese tanners in the mood for buying and prices recovering from the depths of March/April, traders were shifting stock, which they probably picked up for a bargain a few weeks before. Tanners at the ACLE, in general, were not so happy as leather buyers were more cautious as the market is still fragile. So the question to ask is this. Why are traders able to raise prices when demand for finished leather appears to be flat?
During a press conference at the ACLE Madam Zhang Shu Hua, president of the CLIA, was pressed on this point. She said that output from Chinese tanners had improved since May when raw material prices were close to the lowest point. The Chinese government cleverly, unlike the rest of the world, have been offering Chinese industrialists cheap credit to assist them through the downturn. This could explain why they were able to buy cheaper hides and skins in large volumes without necessarily having finished leather orders to cover the volumes purchased. They can then take advantage of the lower prices and perhaps also importantly take an opportunity to tap into hide and skin sources usually deemed off limits. When asked about this she diplomatically said that Chinese tanners do not like to take credit from the government. However, the latest statistics issued by the CLIA show that although the market has recovered in China since May, domestic consumption and international demand would still not account for the raw material buying patterns.
If this is the case then we could see raw material prices lowering again in the next few months as stockpiles of raw and part processed material builds-up with demand for finished leather remaining flat. We shall see.

Printer friendly version

Email this article to a friend