Extracts from the SauerReport

First published in June 2010

Published: 04 October, 2010

Export tanners in China may still be lacking hides to soak. During the long upward march of hide prices, they have been buying hand to mouth hoping that things would get better. We now know they didn’t. At the same time these tanners failed to negotiate full compensation from leather buyers for their increased costs.
In early May, one of the major US packers surprised everyone by offering discounted prices directly to tanners. Together with the softer tone of the cow hide market, many tanners took that as a signal that the hide market was running out of steam. Fewer buyers showed interest and those who asked for offers only a day earlier suddenly decided to withdraw from the market.

More people are taking a wait and see attitude, while those who need hides bid down aggressively or work with domestic hides instead. But many Chinese tanners have been absent from the market for too long and export tanners have not sufficiently covered their needs. Upholstery tanners in China are expected to receive more leather orders soon but are not happy because the raw material prices do not fit with the leather prices furniture makers are willing to pay.
In Tuscany, Italy, it is easier to get orders than to make money. Work is there but profits are far less sure. Many tanners have stopped buying hides while waiting for arrivals of pending orders. Others are looking to find cheaper alternatives.
If orders come the raw material must be in the tannery in a matter of days. This automatically means that European hides are favoured (even if they cost a bit more).
Contrary to the strategy for hides, skin tanners who know their business have bought skins first and then waited for the orders. They knew they were coming. By doing so they have accepted the market risk but it worked out well. Those who bought skins in time have good business now. Those who still need skins now will not find them in time.
Traders in the Arabian Gulf dealing with Asia report that they cannot get any confirmed offers for wet-salted hides from Kenya and Uganda. In Kenya the exporters prefer to sell locally to tanneries who pay decent prices and avoid paying any adjusted export duties.
For wet-blue goat skins, what seemed like an ideal market with China and steadily increasing prices, now suddenly seems to have changed with a major buyer of Kenyan, Somali, Ugandan and Mali skins in China putting the brakes on. Also other buyers in China are not confirming any more orders at US$48/dozen for the Kenyan wet-blue goats – the best bid received this week was US$45/dozen!
It seems the Chinese have found a cheaper source/substitute for the Kenyan skins. One source said these alternatives are Somalia and Sudan where prices are up to US$10/dozen cheaper and not very far apart in quality.
On hides my different sources have the same opinion, but not on skins. While the source quoted sees the Chinese walk away from wet-blue Kenya goat and sheep, another source in Kenya states the skin market continues to be stable and firm. Or maybe he is not selling to China but elsewhere.
The problem with the Kenyan Customs is continuing and the exporters are not prepared to offer raw hides for export.
Calf skin producers try to get ever more. Traders say they have passed the limits of what is possible. Asking prices have been seen of €5/kg for French skins but even the best would not fetch more than €4.40 from Italy. For Dutch calf skins €4 were asked when the maximum realistic price would be €3.80.
A number of calfskin tanners have already reduced production because of the high prices. Time is on their side. They are now working for the winter season but that will be finished in July and the raw material needed for that production is already covered. In August/September they will start producing for the next spring and summer season. Leather for the summer must be cheaper. There will be time to reflect, calculate and negotiate.
In Australia there is not that much happening since Chinese buyers have slowed purchasing activities or even stepped out completely. The same can be said for sheep and lambskins. Skin prices have probably lost a dollar. However, there is still support from the low cattle kills while the sheep flock in the country has reached its lowest number in a century! More than four million animals less than last year.
In New Zealand, the kill was very strong for about a month and even reached the levels of last year. Now it is down again and we hear about closure of killing chains and plants on the South Island two months sooner than usual. In spite of the drop in slaughter, it is still higher than a month ago.
Offers have become very scarce again, and one wonders if this is not a strategy from the producers in order to maintain the market at high levels. But the signals at last, look towards falling prices.

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