A view from America

Change is typically something to be feared as it is the unknown that causes many to lose their confidence. However, change is continuous and is viewed by some as opportunity, ie the greed factor. Since the American tanning industry has already diminished to only a small community from what, at one time, was the world's largest, much of the gloom and doom from this sector has long passed.

Those who remain have found ways to survive internationally by adapting to the changing world. They made joint-ventures with Asian tanners, or moved much of their production capacity to low cost countries to be closer to their customers. Most developed niches that only they could fill.

Others, faced with environmental costs that were above and beyond whatever future profits could be made, elected to keep the capital they had accumulated and invest it elsewhere. Affected American technicians and marketing people found work in other countries where their talents were needed. What did Darwin say? 'Survival of the fittest'.

It seems, from this vantage point, that the tanning industry in western Europe is trying to come to grips with the mega trend affecting its fabled and historic history.

Like America, it is looking for ways to change and adapt and take advantage of unique attributes such as outstanding tanning skills and a close proximity to sources of good quality raw material. Tanners are also creating joint-ventures and/or building their own facilities in China and other low wage countries. Some of the ten new EU member countries could possibly provide other opportunities for western tanning and leather manufacturing organisations.

The hide trade has also adapted to change by selling hides that formerly went to Europe, to new Asian markets. This can be said of dealers in about all exporting countries. The industry is enjoying a long run of fashion acceptance in our finished products, from furniture to automobiles to exciting and creative styles of footwear and leather accessories.

At least for the time being, much of the world, led by the strengthening American economy, is seeing some improvement and, therefore, increased consumption of leathergoods. It could be a great deal worse, and let's not forget more difficult times that were not that long ago.

All of this is evidenced by price gains in raw material from most origins that began around the time of the APLF fair in Hong Kong. In many producing countries, hides have moved up roughly 10%.

Finally, in America, where steer prices had fallen 10% since the fiasco of the BSE crisis in late December, the market managed to find a bottom in early May and jump back nearly 5% within a ten-day period. This wasn't caused by a lack of supply. On the contrary, weekly slaughter increased to the highest levels seen during the year.

Prices rose because tanners business was good and inventories had run too low. Prices became firmer because tanners could make profits against current and anticipated future leather prices. Most Asian tanners' business is good and is the driving force behind world markets. That's a positive for the entire trade.

Since our last View from America, as noted, the long decline finally came to a halt at the beginning of May. Several very large tanners decided that either their inventories were too low, or prices had become too attractive in relation to what they were able to sell their leather for, and stepped into the market at what proved to be a bottom of the steer and heifer range.

Traders sensing this also felt that it would be best to cover shorts while at least some profits could be made, and this enabled major packers to sell multiples of their weekly productions for the first time in nearly a month. Having done this, asking prices rose the following week.

Seeing the potential of profitable hide purchases starting to diminish and, after a week of holidays in some Asian destinations, tanners in China, South Korea and to a lesser extent, Taiwan also stepped into the American market, cleaning up all available steer/heifer offerings, and prices jumped higher.

Specifically, heavy Texas steers, the nation's most voluminous selection, went from a low of $60 at the beginning of May to $62 by mid-month. As this is being written, the market appears poised to possibly reach $65 by the first of June. Branded steers followed Texas and went from a low of $58 to $60-$61 by mid-month and could very well reach $63-$64 by the last day of May.

Heavy native steers moved from a low of $60, essentially the same prices as their branded Texas brethren in late April to $63.50 by mid-May and should brands rise in the above scenario, natives will move in consort. The one atypical factor, however, is that the premium for steer hides free of brands has evaporated due to the slowdown in US automotive tanners business which coincides with declines in American automobile sales.

Although still very much in fashion for car buyers, unit sales have slowed somewhat of late, and this has resulted in reduced orders for the 'big three' auto upholstery tanners. Heifers moved proportionately to Texas as did butts, branded and Colorado steers.

The cow sector, after having traded contrarily to steers in much of the spring, and commensurately to strength in the European cow market, found interest waning in May. As steer prices rose, native and plump branded cows along with Holsteins gave some ground and at mid-month, cows were steady with a softer undertone.

Branded cows went from $45 and somewhat higher in late April to $43 in mid-May. Fleshed Holstein cows, from top processor and packer productions, sold in less volume than was produced at $51.50-$52.50 and had difficulty in attaining $57 c&f in South Korea and China.

Small packers suffered under a lack of interest from traditional buyers in Europe, Mexico and China. This resulted in prices falling 5% or so in the first half of May, although the strength in steers may help this selection as the month continues. Low grades were soft as well, for the same reason as small packers in that their traditional markets displayed less than normal interest.

In addition, an EU embargo on many items that oddly included hides from rendered material being exported from the US into Europe placed further pressure to this category. Calf and kip were easier, but bulls were fully firm as demand outstripped available supply between late April and mid-May.

There will always be a hide and tanning industry along with the manufacturer of leather into consumer goods. Prices will rise and fall, based on consumer demand, people will always eat meat and, therefore, the hides will have to be dealt with.

They may fall to a dollar a piece, or climb to a hundred or more dollars each, but the volumes produced in the world cannot otherwise be disposed of and will have to be made into leather.

This will enable the wonderful finished product in which we all earn a living to be around as long as we will, and beyond. Although we will have to learn to live with the fear of the unknown, there are now, and will be in the future, opportunities for the 'fittest' to fulfil the greed factors that lie within us and, therefore, prosper.

Don Ohsman

Hidenet.com

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