Extracts from the SauerReport

Fortunately there are some exceptions in the fashion sector but these are limited and almost exclusively benefiting the Italian specialists for this kind of material. Looking back, sales were mostly in US/European cows, bulls and cheap hides from no matter where by those who were lucky enough to have them.

European hides of medium quality, ox and bulls and also packer steers from the US, remain hard to sell. For Europeans the US dollar, which dropped against the euro, did not accommodate sales either. All in all it means the general situation after the fair is the same as it was before the fair.

There is plenty of leather business around but there is not plenty of profitable leather business around. Everybody was there, however, and there was a terrible need to discuss the many problems presently hampering the trade with China. Many of these discussions were held and we may hope led to a better knowledge and understanding of the situation. This alone made it an interesting and necessary fair. Those who did not already know are now aware that trading with China will never be without problems and risks.

As far as the import ban by China regarding the FMD case in the UK is concerned, it is not so much a hide problem. For the UK market as a whole, China is small fry for hides and so the FMD problem may have no bearing on UK hide prices.

The vast majority of the containers caught afloat to China and returned to the UK or re-directed to other destinations were carrying skins. The problems for the small percentage of hides involved have been solved by now.

During the course of a meeting between the UK and AQSIQ (Chinese authorities), AQSIQ refused to accept UK hides and skins afloat, shipped after July 8. They also said they might take up to three years to reopen this channel. Maybe this long period can be renegotiated as the problem has not been widespread. However, specialists do not think anything will be resolved in less than 3-6 months.

Also the UK government is not that interested in the hides trade to try and make things move faster. Finally it was suggested that China should send its chief of veterinary services to the UK to test various areas. Whether this will happen is not known. For the moment UK prices on heavier hides are higher than American prices so even if allowed it would be hard to sell anyway. It is the UK skin market that may suffer mostly from the China problem.

About 20-30 containers of skins have arrived back in the UK but according to DEFRA (Department for Environment, Food and Rural Affairs) they may only allow hides and skins back into the UK if accompanied by a Certificate of ‘Non-Manipulation’ issued by the Chinese government!!! Whoever heard of such certificate and where do you get it?

There are still many containers afloat and many containers in Chinese ports. Some people have gotten some goods through into China but there are also reports of arrests for falsifying documents. One person has got his skins through to a warehouse but cannot get them processed without further permission.

The way it looks now is that these hides and skins cannot be imported into China and neither can they be re-imported into the UK. Sounds like a real disaster! A UK trader said the Chinese will never issue the certificate requested by DEFRA since the hides did not enter China and were not even unloaded since there were threats to burn them if taken off the ship! For the Chinese government these goods simply do not exist.

The trader we spoke to got understandably quite cynical and said that if the vessel sinks sellers can claim from the insurance and that may be the best solution. What a mess! Nobody knows what will happen next. But surely the containers cannot remain between the wall and the ship. No doubt some solution will be found but no-one in DEFRA wants to say anything for the moment.

By joining forces, the Brazilian leather industry and its associations have been able to convince the government not to increase the export duty on wet-blue and to leave it at the 9% it is now. Congratulations to the Brazilian leather clan and a nice example for other countries that it is possible for an industry if it joins hands, to negotiate successfully with a government.

Brazil’s leather exports in August 2007 (33,400 tons or US$188 million) were 18.5% percent higher than the previous month. Main buyers were still Italy, China/Hong Kong and the USA.

The only tanners in Italy who are not complaining are those making patent leather (mostly Toscana) and the few very specialised tanners making top quality upholstery leathers. It is said they bought big volumes of cows in the USA and elsewhere for their purpose.

Sources from the insurance industry reported that the turnover of the tanners in at least North Italy fell sharply. September 15 was a big day for the Italian industry. Merchandise bought in May and June is up for payment then since no payments take place in August. People are curious to see who will default on that day (which some call D-day!).

In Spain, the skins market was confused before the holidays and is now even more so because of the lack of market indications about possible changes. Merinos are worth very little money at the abattoirs. No significant business on Spanish doubleface skins is expected before March next year. For that reason prices may fall even further in October and November.

Many merchants keep buying at the abattoirs and at the low prices just because it happens to be their business, not because they know what to do with them. Many Turkish tanners have stopped production or reduced their labour force to half.

The Spanish merchants who still hold large stocks of Merinos are now losing any possibility of avoiding large losses. Also the quality of the skins in stocks will only reduce further and not make them worth more. Many have been in storage for more than six months!

Nappa lamb is doing better and enjoying steady demand. Goats are in demand as well for shoe production. Lining lamb and goat is said to be all sold out.

The global sheepskin market has changed considerably over the last months. China has cleaned up all the old and big stocks of sheepskins all over the world. They have been buying every single lot available including all rejects and misshapes.

The doubleface trade is dead. Tanners who should be working at maximum capacity are laying off workers or are even closed. The huge stocks of doubleface skins in the hands of merchants and tanners may soon have some sad consequences.

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