The SauerReport

In mid-November, the dollar weakened again which does not help the leather industry in Europe. But 70% of the world's leather is made in Asia and currencies will not bother the majority of players there. No clear improvement in leather orders or in finished leather prices is more of an issue for the Asians. Many are discussing if there is a reason for raw hide prices to drop further when they look at the slaughter figures in different countries. Such discussions can take some time and calculations and no doubt different opinions will be the outcome. I would turn it around and say does the present status of the leather industry and the time of the year (and season) we are in now, give us any reason for prices to increase? I think such discussions will be much shorter and the answer a clear NO (but of course, that does not mean it cannot happen). A trader just back from Moscow confirms that shops are selling well there. Temperatures are around zero in Moscow and winter clothes are definitely needed now. Let us hope it will get the doubleface business moving again. Talks are that a number of Italian tanners might prolong their Christmas holidays from as early as mid-December all the way to mid-January because of the ongoing lack of orders. After 15 years of neglect, shortage of power and shortage of raw material, the tanneries in Iraq (or what is left of them) are in a mess. Domestic hides, which in the past were about 60% machine flayed, are now all hand flayed again. Efforts have been undertaken to revive the country's biggest tannery SLI (State Leather Industries) but, without regular power supply, this is an impossible job. Some small tanneries are producing wet-blue for the Syrian and Lebanese markets or for Italy via Syria. Since there is no regular trade, there are no real export prices that mean anything. One tanner stated he exports wet-blue cow hides at US$1.20. When asked how he measured his leather, he said he guessed since no measuring machine is available. A long way to go! But at least there is some news again. China has officially announced a reform in its VAT rebate policy on exports. For shoes and leather products the reduction will be from 17% at present to 13% from January 1, 2004. China remains in shock over the customs crack down, with an accumulating number of containers in Hong Kong's port, although some sources say that quite a number of containers have been released from storage in Hong Kong recently. A shipper in Africa reported he had received an OK to go ahead with shipments again. However, we need more confirmations before we can conclude the problem is coming to an end. More panic and insecurity resulted after the story of another big tanner having been detained and later released. Many players in China and in Hong Kong find it wiser to keep a low profile and stay away from all trade for a couple of weeks or months until things will quiet down. Nobody has the slightest idea when that could be but few doubt it will not be before the end of the Lunar New Year festivities in January. The government's attacks on corruption and tax evasion seem to have results and more tanners now follow the rules and import the official way. This means they pay their taxes as they should which, in its turn, increases their costs and thus sales prices. Good news for the leather industry outside China! The delays over raw material have no doubt disrupted production schedules. After all, all these hides and skins now delayed, blocked in Hong Kong's harbour or even cancelled, were meant to end up in leather products that had to be delivered somewhere at a certain time. Now they may not. A lesson for buyers: low prices are not all that counts. Low prices often come from countries where all kinds of other problems may appear which can result in not receiving the right goods at the right time. In the future, such buyers may no longer be prepared to put all their eggs in one basket. For the moment, in China, upholstery leather for export is still the best business, while shoe leathers face reduced demand. Demand globally has reduced for upholstery leather, especially from the car industry which is going through a period of disappointing but not totally unexpected sales in October and November. Taiwan remains slow and Korea works about steady at an estimated 70% of tanning capacity. It is the garment leather business which continues to be disappointing. Much of this trade has moved out of Korea for good, most likely to China. The upholstery leather business in Korea is not doing too badly now but will most likely slow down during the last weeks of this year. The end of Ramadan festivities in Muslim countries and Thanksgiving in the USA are also reasons for trade to slow down. Seeing the lack of activity, one is not surprised to see very few price changes also. Business with regular customers continues, of course, but no new and exciting things are happening anywhere. Ron Sauer theSauerReport.com