Leather production on the increase

15 November 2003

The favourable condition of the leather market, brought about largely by an increase of footwear manufacture (+12%) was reflected in tannery sales last year. Chrome tanned leather shipments were up 15.5% and juft leather up by 38% compared with 2001. Sole leather sales, on the other hand, decreased by 32 %. Juft leather is a term which is particularly relevant to the Russian leather industry and is described as thick, heavily fatliquored, hard wearing low cost leather. The lowest grades of wet-blue are processed into leather suitable for work boots. Virtually all leather manufactured in Russia is chrome tanned and although sole leather is produced, there is very little demand for it within the country. There were 31 enterprises producing chrome leather in 2002 but 93% came from the 16 largest companies. The Ostashkov Tannery (Tver region) and the Russkaya Kozha tannery in Ryazan both doubled their production and were responsible for 37% of the total output. Juft leather was produced at 15 Russian factories and the seven largest of these accounted for 85% of total production. There were also 15 enterprises producing sole leather with 72% of total production coming from the five largest companies. Despite the growth in leather output, Russian imports of leather and semi-finished products continued to increase last year. Their combined imports amounted to 4,856 tons, including 2,753 tons of semi-finished and 2,103 tons of finished leather. Imported semi-finished goods account for 3-4% of the raw material volume used for domestic leather production, whereas imported leathers took 16% of the Russian market capacity. Together, with the growth of finished leather production in 2002, output of semi-finished products (mostly as wet-blue) delivered for export rose sharply. Export volumes kept increasing from the fourth quarter of 2001 due to the export duty rate for raw hides and skins raised to €500 per ton on August 5, 2001. As a result, cattle hide exports fell to 30,000 tons in 2002, 2.8 times less than 2001. Russian packers engaged in storing up raw hides and skins have expanded their processing through to semi-finished products, since the export duty for them was not raised. Last year, semi-finished exports from Russia amounted to around 42,000 tons, or 2.5 times more when compared with the previous year. Finished leather exports were 425 tons, equivalent to some 4% of the total production volume. We should point out that both Russkaya Kozha and Ostashkov regard themselves as the largest tanneries in Russia. Russkaya Kozha, better known by the name of their tannery at Ryazan, are certainly very proactive and are continuously growing. They say that the statistics misrepresent their actual production. They also place the tannery in Kursk among the top five in the country. The tannery in Kursk has been reported as getting back on their feet. Kurskaya Kozha tannery are apparently recovering after a major renovation of both machinery and technology. The enterprise was said to have been idle four years ago but now their price-list contains a wide range of finished leather for footwear, apparel, furniture and haberdashery. According to Oleg Shevtsov, president of the Kurskaya Kozha, nobody else in Russia nowadays can manufacture leather of such quality. He says that Kurskaya Kozha's production approaches world standards and has already been exported to Italy last year and is being prepared for delivery to China. They have doubled production volume within the past two years, reduced working time losses to 7% and eliminated their debts. There are 650 employees at the tannery. They are close followers of fashions and, in addition to their standard leathers, they have a range of fashionable leather, including ostrich, python, skatefish and crocodile. Ryazan expand production Russkaya Kozha are planning to change their name next year to Ryazan Tannery which is the name and location of their tannery. In addition to actively pursuing overseas markets, there has been ongoing installation of new machinery and equipment to enable them to increase production. The designed capacity of the tannery is 4,000 tons/month of raw material and the expansion will take this to 5,000 tons. For the most part, the new machinery is Italian, with some Spanish. Some chemicals are supplied locally but machinery manufacturing capacity was lost when the USSR was abandoned. They told Leather International that there is constant input from some of the world's best known chemical companies who wish to be involved in solving practical problems. The tannery was originally designed for the production of footwear leather and they are only geared-up to finish side leathers. However, they can process whole hides up to the crust stage. New finishing lines are a possibility for next year. They are gradually shifting away from footwear leather production and this currently represents around 20% of their production. They say this represents about 30% of overall domestic production of footwear leathers. This year they have begun to produce wet-white with the help of French partners, Tannerie de Mont Brun. 80% of the tannery's production is exported, mostly to Europe and mostly as wet-blue. They have begun selling their finished leather overseas but expect this to take another 1-2 years to take off. This September, they exhibited for the second time at Le Cuir A Paris. They also exhibited at Guangzhou in China and will be at the second edition at the end of this month (this event was delayed because of the outbreak of SARS). In addition, they showed at Shoes & Leather Vietnam in Saigon in July. They have been refused exhibition space by Lineapelle. Russian footwear market growing The manufacturing of footwear in Russia is characterised by unstable growth rates, amounting to 10.4% in 2000, 2.2% in 2001and 27.9% last year. Such output dynamics are primarily determined by a rather low demand for footwear that is limited by the low incomes of the majority of the population. The average gross wage at the start of 2003 was US$120 per month. According to 2001 statistics, 186 companies out of 286 earned profits, 12 broke even and 82 were in the red. Footwear imports to Russia have risen in recent years, making up 14.7 million pairs in 2000, 25.1 million in 2001 and 43.2 million in 2002, exceeding the total domestic production. The 2002 imports amounted to 53% of the footwear market capacity. At the same time, Russian footwear exports are on the decline. The industry's share in the volume of production fell from 24% in 2000 to 14.4% in 2002 and 13.2% in the first quarter of 2003. While the footwear market capacity amounts to around 81.7 million pairs, the actual sales of footwear on the Russian market are estimated by the Ministry for Technology and Science at 220 million pairs a year. The balance is made up both by illegal imports and the local 'shadow' produce. The illegal footwear imports into Russia are estimated at 130 million pairs a year. The increase in footwear production is said to be due to restrictions on leather exports. Vladimir Bakhanovsky, head of the light industry department of Russia's Economic Development and Trade Ministry, has announced that production of footwear in Russia totalled 10.3 million pairs in the first quarter of this year, a year-on-year increase of 9.9%, according to the Interfax news agency. Bakhanovsky noted that this increase in production was due to the State taking measures to restrict leather exports from Russia. Russian footwear production could total around 43 million pairs this year, he concluded.

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