Sauer extracts

By mid December there was a general slowing down towards the year end as could be expected. Quality shoe leathers were doing better. Good light hides and selected goat and sheepskins are the preferred raw material. Unfortunately this is not the bulk of the leather trade which shows few improvements if any. The upholstery tanning sector will continue to suffer unless leather can be offered at very attractive economical prices. However, few tanners can meet that demand in a profitable way. Tanning over-capacity in the home furniture upholstery sector, particularly in Asia, keeps competition amongst tanners strong and leather prices low. Some may switch to other leather types next year. The somewhat better dollar against the euro must help European hide and leather exporters in their calculations but imminent holiday closures in Europe until January 4 or later and the Lunar New Year holidays in Asia at the end of January and into February make any sudden action in volume unlikely. Most do not think prices will change either. Figures for the last week in November showed that overall hide prices barely changed during the last two weeks but that upholstery hide prices came down (totally in accordance with the latest somewhat disappointing developments in that sector). We also note that the enthusiasm for goatskins seen during the last couple of weeks is fading. Sheep and lambskin prices did not really change while the doubleface woolskin business remains a disaster (with maybe a few exceptions for the very best qualities). Nobody seems to believe in any more significant changes for anything between now and the year end. Also at the end of November, the general mood in the USA was for softer prices in spite of the low kill and packers' resistance. As far as general trade is concerned there was not much going on anywhere. Some have the feeling that Christmas holidays have already started. In deed, it needs a magnifying glass to trace trade. Prices barely move at all. At the start of December, US consumer confidence was at a new low which is not good news for the leather industry. Consumer spending makes up two-thirds of the US economy and the USA is the world's largest consumer market. On a global basis prospects for upholstery leather are mediocre since both furniture and car sales are disappointing. Only top quality leather furniture and thus hides still look ok but the volume in that sector is, by definition, not big. While leather demand from the side of the tanners is modest all over the world and while there are plenty hides everywhere to satisfy tanners' needs, prices at abattoirs are only coming down very slowly. The abattoirs' advantage is that they are still enjoying bigger demand than supply from their customers, the traders. Traders need to cover at least their expenses to survive. Since competition is so tough, prices paid by tanners so low and margins so small, they need to sell even more hides to reach their break-even point. That is why they are scrambling to get their hands on even more hides while the abattoirs just stand back with a big smile on their face and watch this struggle. On the other hand, slaughterhouses should understand that because their meat business is bad (unprofitable, few sales and thus few hides) nobody is going to pay more for his shoes or sofa (thus the manufacturer will not pay more to the tanner nor the tanner to the raw dealer). The final result is a trade with minimal margins and a struggle to survive which has not yet finished for many in this once so glorious business. New Zealand is presently still between seasons and the majority of lambskin exports is in raw to China. Exports in pickled to a variety of destinations in Asia and Europe will start again in January. In Tanzania, dry hide prices are now approaching those of Kenya. Tanzania's quality does not justify a price that close but it is only here buyers can find numbers. Hardly any can still be found in Kenya or Uganda. Buyers who want East African dry hides in volume thus have to pay the price. In Australia, lambskins prices dropped $3-4 in the week ending December 4, due to a short-term over-supply as the last of the new season lambs flood the market as well as a currency adjustment because of the weak US dollar. The same happened with hides. However, part of the decreases have now evaporated. Buyers of wet-blue sheep, many in India, may currently prefer low grade Sudanese skins to run Kenyan skins because of their bigger size at about same price and qualities. Wet-blue Ethiopian hides sold cheaper than original offers. There were tremendous price differences between tanners for wet-blue goatskins. For buyers it seems worthwhile to shop around before deciding. At the outset of December, in China there were problems in the pigskin garment and the upholstery sector. Cutting and sewing activities were down 50%. There may be better news for domestic sheepskin business after a year of strongly reduced garment exports to Russia and consequent raw skin price reductions. Currently, there are problems in the European garment and shoe industry. Consumer spending reduced and an increasing number of shoe and garment manufacturers have no problem in letting their leather suppliers down. Tanners have less financial resources while some are facing new and expensive technical anti-pollution regulations which they cannot possibly meet. Also abattoir prices are not dropping fast enough to accommodate tanners in their operations. To top it all there are complaints from tanners about abattoirs refusing to consider quality claims (the number of which is strongly on the rise). The influence of the latest euro/dollar relationship needs no further explanation as to its influence on leather or leathergoods exports. Only the very top brands, where prices have little to do with production costs but all to do with brand names, seem able to escape the general misery. Skin traders have big problems in finding takers and their stocks might be growing and prove expensive later on while prices are softer every day. On the other hand their buyers, in trouble also, often insist on easier terms and longer financing. Where is the good news? For European hides, Eurozone trade improved somewhat, especially in light weights. Certain traders are taking long positions for the new year. This is more a gamble than anything else although hides are not expensive if compared with the past. But who deals with the past? Tanners worldwide are now covered till after Xmas and (Chinese) New Year holidays and nobody seems in a hurry to buy raw this month. Expectations of new action in the few weeks that remain are therefore minimal. Exports are more difficult every day the dollar loses further against the euro. Abattoir prices would have to come down just as fast to keep even the dream of selling raw hides at a profit alive. Unfortunately they don't! South East Asia tanners are covered for their needs till the end of January and are not interested in goods arriving until after the Lunar New Year holiday period which will cover a big part of February. January will, therefore, be early enough to do the buying. For the rest of December they can keep quiet and see if it will push prices down. In Mexico there was more interest for cheap branded bulls but those on sale may not be cheap enough. Native bulls from the US are out of reach for most tanners at the ruling prices. There is good interest for sowskins for prompt delivery but here again price ideas of sellers and buyers are not the same and business remains limited. Many tanners closed for Xmas holidays as early as December 15. Others will join a week later. Ron Sauer ronsauer@wanadoo.fr