Hide exports see swing to wet-blue and crust

Last year an acute need of raw hides for the local leather industry emerged and that was a reason for buying more raw hides abroad. In particular, imports of cattle hides weighing more than 16kg have risen to 32,500 pieces in 2004 compared with 3,800 pieces the previous year. Moreover, purchases of various bends and bellies have increased by 60%, up to 3,530 tons which is equivalent to 150,000-160,000 hides. The raw hides were mostly purchased in Italy, in particular whole cattle hides at US$46 a piece and parts of hides for US$0.85 per kg. According to Russia's State Statistics Committee, leather industry companies in Russia recorded an average sales margin of 4%, and an average return on assets of 1%, in the first half of this year. In comparison, the average first-half sales margin and return on assets in Russia were 14.6% and 3.3% respectively. The Russian Prime Minister, Mikhail Fradkov, has ordered the Finance Ministry and Economic Development and Trade Ministry to draft proposals on reducing value added tax in Russia from 18% to 13% from the start of 2007, according to the RIA Novosti news agency. The government said that lower VAT should help to boost economic growth and industrial output because of higher consumer demand. A large-scale public opinion survey conducted by the All-Russian Public Opinion Center (VTsIOM) in 46 Russian regions has revealed that 62% of respondents were 'irritated' by the presence of Chinese goods in shops in Russia, according to the Interfax news agency, with 61% saying they would like the Russian government to restrict imports of daily-use consumer goods from China. The number of respondents in the poll was not disclosed. In recent years, there has been a sharp rise of Russian raw hide deliveries to Kazakhstan which are being re-exported to European markets. Russian hide exports into Kazakhstan, supplied duty-free, doubled from 3,700 tons in 2003 to 7,700 tons last year which can be attributed to the low export duty of €50 per ton in Kazakhstan. In value terms, Kazakhstan's share in the Russian cattle hide exports rose to 31.3% in 2004 from 9.8% in 2003. However, at the end of 2004, the duty on exports of cattle hides from Kazakhstan was raised at the request of the Russian government, but only to €200 per ton and not to the Russian level of €500. Nevertheless, the change of duty caused a heavy drop of total Russian cattle hide exports to 1,145 tons in the first quarter of 2005 from 5,493 tons in the same period of 2004, with deliveries to Kazakhstan having fallen to 479 tons from 4,072 tons. There is a great difference in prices for Russian raw hides exported into non-CIS countries and into Kazakhstan. In 2004, hides weighing up to 16kg each were delivered to non-CIS countries at US$31.88 per piece, to Italy at US$36.32 and to Kazakhstan at US$12.30. The heavier hides were delivered on average at US$32.51 and US$15.98 per piece respectively. Russian sheepskin exports decreased to 165,000 pieces (-37%) in 2004. In particular, 146,000 pieces were sold to Türkiye, 30% down from 2003, at an average price of US$2.17 per piece. However, 4.7 million sheepskins were collected and procured in 2004. Sheepskin imports amounted to 2.27 million pieces last year (+6%), purchased entirely from Australia at US$1.98 per piece. Russian exports of semi-finished cattle hides made up 5,951,000 pieces in 2004 (+16%). Sales of wet-blue leather, representing 86.5% of the total semi-finished leather products, have risen by nearly 12% whereas crust leather rose by 56%. Italy's share in the Russian exports of semi-finished products was 57% last year, down from 63% in 2003. Russian bovine leather exports doubled in 2004, amounting to 272 million sq dm, equivalent to 15.8% of leather volume produced in Russia. Last year, revenues from the total exports in raw hides and skins, semi-finished products and leather of all kinds of livestock were worth US$155.9 million, with semi-finished products accounting for 68%. Imports of bovine semi-finished products increased to 1,294,000 pieces in 2004 (+10%), including 1,189,000 pieces of crust and 105,000 pieces of wet-blue. Finished leather imports grew to 221.6 million sq dm (+3.7%). In value terms, semi-finished products and finished leather imports were worth US$115.3 million, equivalent to 85% of the export revenue. The production of chrome leather rose by nearly 5% due to the 37% rise at Ryazan, the largest Russkaya Kozha tannery which was responsible for nearly one third of total chrome leather output. In 2004, an expansion of chrome leather output was recorded at eight of the largest tanneries (out of 26 in total), which provided 51% of the total production. In contrast, the manufacture of juft leather decreased by 4.9% last year. There were 13 enterprises producing juft leather but 88% of the output came from the seven largest companies. The production of sole leather also kept decreasing in 2004 but at a lower rate than in 2002-2003. The five largest tanneries (of ten) producing sole leather were responsible for 93% of the total output. Russia's State Statistics Committee reports that the number of people working in large and medium-sized companies in Russia's leather industry in June this year was 48,600, of which 47,800 were full-time workers, according to the Interfax news agency. The State Statistics Committee reported that Russia produced 53.8 million sq dm of leather products in the first half of 2005, a decrease of 19.7%, according to the Interfax news agency, while leather footwear production dropped 1.4% to 22.2 million pairs. In the first quarter of 2005, Russian exports of semi-finished leather products amounted to 1,854,000 pieces, a year-on-year rise of 16%. Simultaneously, deliveries to Italy rose to 1,135,000 pieces (+30%), they more than doubled to Spain to 223,000 pieces and to France to 105,000 (+65%). At the same time, Russia's exports of bovine semi-finished products into Kazakhstan dropped to only 800 pieces in the first quarter of 2005, down seven times from the same period last year. Russia's foreign trade in leather products experienced continued structural changes in 2004, with raw hide and skin exports declining and value-added products for exports increasing. In particular, the share of raw hides and skins in total exports of leather products declined from 17.9% in 2003 to 13% in 2004. Exports of cattle hides amounted to 795,100 pieces in 2004, 3% less than the previous year. In value terms, cattle hide exports have fallen to US$19.98 million, a 26% decline. Such a discrepancy is attributed partly to the drop in export prices for hides. In particular, an average price for hides weighing up to 16kg was US$31.9 per piece in 2004, down from US$37.6 in 2003. The major export markets for Russian cattle hides are located in five countries: Italy, Kazakhstan, Lithuania, Poland and China with their total share having risen to 97% in volume terms and 95% in value terms (Table 4). Italy remained as the main buyer of Russian hides and skins but its share in Russia's cattle hide exports has fallen from 65% in 2003 to 51.8% last year. Simultaneously, Russian deliveries to Kazakhstan more than doubled in 2004, at much lower prices, US$12.4 per piece weighing up to 16kg compared with US$36.3 achieved from Italy, and at US$15.9 per piece for heavier hides as against US$18.2 from Italy. In value terms, Kazakhstan's share in Russian cattle hide exports rose from 9.8% in 2003 to 31.3% last year. This fact is attributed to the transfer of deliveries from Belarus where, like Russia, a duty of €500 per ton of exported hides has been in force since December 2003. Russian hide exporters continue to prefer Kazakhstan and supply there duty-free, despite the fact that the duty on exports from Kazakhstan was raised from €50 to €200 per ton last year. Russia's exports of semi-finished leather products and leather were worth US$135.1 million in 2004, up 7.6% compared with the previous year. Of the total exports in hides and leather, worth US$155.4 million last year, hides and skins accounted for 13%, semi-finished products 68% and leather 19%. Russian tanneries are exporting semi-finished leather products mainly as wet-blue now. The principal buyer of these products is Italy, taking 62% (Table 5). A marked feature of the Russian leather product imports is a rising share of semi-finished products and leather. In 2004, imports of raw hides and skins increased by 44% with a growth rate for semi-finished products and leather of 75.5%. As a result, the share of raw hides declined to 32.3% from 36.6% in 2003. It is also noteworthy that the majority of imports of semi-finished cattle hides is in crust form (Table 6). The Russian footwear market was estimated by the Russian Tanners' and Bootmakers' Union to be 250-280 million pairs in 2004, up by 12-15% compared with the previous year. But the local footwear manufacturers are able to secure only one fifth of the market volume, with the remainder being imported. A serious problem confronting Russia's footwear industry is illegal imports of footwear accounting for 60-80% of market requirements. There were 260 large and medium-sized enterprises producing footwear last year but 90% of the output came from the fifty largest companies. According to the Russian State Committee for Statistics (Rosstat), footwear output amounted to 44 million pairs in 2004, down about 7% on the previous year. But specialist estimates suggest that the real production figure was nearly 60 million pairs last year. The Russian footwear market is set to further expand but at a much lower rate, not exceeding 4-5% per year. Russia's Federal Customs Service reports that Russia imported 4.6 million pairs of leather footwear worth US$62 million in the first half of this year, nearly all of which was imported from non-CIS (Commonwealth of Independent States) countries. Livestock problems The authorities in Russia's Altai region were taking urgent measures to prevent the spread of anthrax in the Charyshskoye district in mid-August, according to the Interfax news agency. Officials in the local Ust-Kan district administration were told to prevent the movement of cattle and meat from the Charyshskoye district. Meat processing facilities in the Ust-Kan district have been closed until further notice. Russian veterinarians confirmed a foot-and-mouth outbreak among 46 cows at the Lermontovskoye livestock farm in the Khabarovsk territory's Bikin district in late August, according to the RIA Novosti news agency. The virus was said to be the Asia-1 virus. Quarantine restrictions have been introduced at the farm and in three villages surrounding it.