Green pressures rock a steadying ship14 August 2002
The closure of finished leather producers in the US appears to have halted for the time being after a disastrous 2001 for the domestic tanners. The market is now steadier and flow of US tanners offshore appears to have abated. The reopening of Prime Tanning's plant in Berwick, Maine last December and the probable resurrection of Irving Tanning from Chapter 11 offers some hope for the future. In mid July, tanners Wolverine reported that their second quarter earnings rose by 2.7%. 'Business has been picking up this year in the US', says Ron Sklarski, financial manager, for leather chemical manufacturers, Chemtan, who are located in Exeter, New Hampshire. 'The first few months of the year were flat but from the end of March we have seen things begin to improve', he added. Half of all Chemtan's sales are with domestic customers. American tanners still face an uphill battle against demanding environmental pressures and imports of cheaper leather and leather products from overseas. In fact, it is estimated that more 'American Lifestyle Leather' is now made in China than in the US. A strange thought. Footwear manufacturers and retailers reported that sales have fallen in the last year and are continuing to fall this year. Companies such as Shoe Pavilion said second quarter sales were down 3.7% compared with the previous year and Footstar said that comparative store sales fell 0.4% for the quarter ending June 29. Declining footwear sales, although not good, may well have a limited impact on US leather sales, as the market is full of imports (table 2). Imports of shoes and leather products reached a record $19.909 billion in sales during 2001 compared with $825 million in exports. A comparison of total footwear imports from 1999-2001 by country can be seen in table 6. According to US leather industry statistics released in the annual USDA livestock summary, there are 13,779,079 cattle hides available (table 1) in the US which is down 2,966,921 compared with 2000. In fact, US cattle hide wettings in 2001 were the lowest since 1991 (figure 1). Last year saw exports of leather from the US increase in value to $1.221 billion compared with the previous ten years except 1998 (table 2 & figure 2). However, the value of exports to imports shows a record net deficit in value of $18.197 billion. In addition to all their other woes, evironmental pressures are an ever-constant financial constraint. Irving Tanning and IBP, two well-known American leather industry companies, have both come under increasing environmental pressures from local residents surrounding their plants. These act as typical case studies of the kind of difficulties US tanning companies are subjected to. IBP The public is to help decide whether IBP will get a permit for its giant meatpacking plant near Dakota City. IBP Fresh Meats are seeking a five-year permit that would dictate the quality of treated wastewater that they dump into the Missouri River. The permit process has travelled through government regulatory agencies and the federal court system since 1995. Local residents have been concerned for years about the plant's emissions. A preliminary federal study last year indicated a possible link between high levels of the toxic gas hydrogen sulfide, which the plant's wastewater emits, and health problems of local residents. 'Federal regulators have evaluated the company's plans and a permit is likely to be approved', said Joe Cothern, an EPA (Environment Protection Agency) spokesman. 'But if somebody does identify something of significance, we may undertake a more detailed study', he said. The permit will allow IBP to release wastewater from a newly installed reverse osmosis filtering system, not yet operating, and from another system now under construction. The reverse osmosis system removes sulfates and iron from well water used in plant processes and will reduce hydrogen sulfide emissions, says John Meyer, IBP's area environmental manager. 'The other system, scheduled for completion in 2003, will reduce the ammonia levels in the wastewater, resulting in improved oxygen levels in the river', adds Meyer. The plant has been operating under temporary wastewater standards during the permitting process. The pending permit applies to treated wastewater released from the plant's packing house and tannery, which together release 3-5 million gallons a day. IBP have already made significant reductions in the release of hydrogen sulfides into the air from their wastewater, said Mary Mindrup, the EPA's regional chief. She credited improvements, such as the covered wastewater lagoons, imposed in the first part of a consent decree from the US federal court given in 2000. Wastewater permits are typically granted by the state Department of Environmental Quality. However, that process grew so contentious that the EPA, which said a proposed permit did not meet the standards of the Clean Water Act, stepped in and took it over, suing IBP in federal court. It was settled in a two-part consent decree. The process cost IBP $4.1 million in cash penalties and another $23 million in improvements to their Dakota City plant. 'I fully expect this to comply with all the requirements of the consent decree and permit', Mindrup said of the company's new equipment and plan. 'If not, we'll be back.' Rod Krogh, a founder of Citizens Promoting Environmental Stewardship, said that his group supports 'a more stringent draft permit' and hopes to see it expedited so the new equipment can be brought on-line at IBP. Irving Tanning In a separate development, another major US leather producer, Irving Tanning is facing a large environment related bill at a time when they attempting to emerge from Chapter 11. According to the Central Maine Morning Sentinel, a special town meeting was called in Hartland, USA, to address a $160,000 revenue shortfall which was linked to the funding of a town sewage facility. The funds were needed to reimburse the MBIA Insurance Company for payments they made on the town's behalf in connection with a 1994 bond issue for improvements to the town's sewer treatment plant. The town shares the debt and operation of the treatment plant at (5%) with Irving (95%). Irving is still under Chapter 11 bankruptcy protection and, therefore, the town is obligated to meet the bond debt. The tannery announced their Chapter 11 filing last year, (see Leather International, August 2001, page 22) while earlier this year, company lawyers reported plans for the company to divest themselves of foreign subsidiaries and restructure. The tannery is the single largest taxpayer in Hartland and carries the greatest burden on the operation of the treatment facility. One section of the 2001 town report indicated revenue from the tannery was down $181,064 compared with 2000. With negotiations between the town and the tannery being conducted through lawyers, Richard Larochelle, company president, had been unaware of the special town meeting and the bond issue reportedly tied to his company's financial situation. Larochelle said the tannery is now 'doing quite well with reasonable levels of production. We hope to file a plan of reorganisation shortly. The process is moving along and needs to go through the normal court process', he said. The Irving Tanning board have approved the restructuring plan and with court approval, the company could emerge from Chapter 11 as early as July. Despite the financial difficulties, Irving have began hiring staff again and running at substantial hours. A number of the former employees laid off in connection with the Chapter 11 process have returned to work. The company have about 300 employees, but have had between 450 and 550 during peak production. 'We're not out of the woods, but it's looking a lot more optimistic than a year ago', said Larochelle. Raw materials Following the dramatic rises in prices of raw hides during the spring of 2001 due to the FMD outbreak in the UK, raw material prices have fallen and generally stabilised throughout 2002. Prices across all major selections bottomed out in January and have gradually risen through the year. Average prices between April and July have generally remained level without any dramatic falls or rises. Asian destinations led by Korea, China, Japan Taiwan and Hong Kong continue to be the largest exporters of raw and wet-blue US hides. A significant number are also shipped to Italy, Mexico and Canada (table 4). In 2001, exports of hides and skins reached a record $1.821 billion in sales compared with imports of $96 million.