Less demand from China brings down hide prices17 August 2007
Hide values continued to rise throughout 2006 and, by December, all steer hide selections were commanding prices well over $70 per piece on an FOB basis. In the latter half of 2006, steer hide prices rose around 20% while cow hide prices went up by about 22% for the year.
It was not possible to predict the extent of the demand for US hides during the past year. According to the US Hide, Skin and Leather Association, China was the biggest enigma for the hide industry. 'In the past five years, China has expanded their tanning industry so rapidly that today we are at a point where China consumes well over 50% of the hides produced here in the United States. 'It is easy to see how China has dominated the market over the last several years! With established tanneries in Korea, Thailand, and Indonesia still running and needing hides, these tanning areas are in a constant battle to get enough hides to tan. Between the Chinese and the other Asian tanners, there simply have not been enough hides to go around, thereby causing hide prices to increase. 'In 2006, the constant rise in hide prices made profit margins impossible to maintain without substantial increases in leather prices. In many cases, these necessary price increases were not forthcoming, with leather prices actually forced lower. The tanning industry at the end of 2006 is probably in the toughest financial bind we have seen in years. As a result, we are likely to see an increase in tanner bankruptcies and closings in the months to come. 'Despite these financial difficulties, there are simply too many tanneries making too much leather and needing too many hides. As a result, we have seen the demand for hides outstrip the available supply, so hide prices continue to climb.' Speaking at the meeting of the International Council of Hides, Skins and Leather Traders Associations in Hong Kong earlier this year, Mike Reddington spoke of his association's expectations for 2007, in particular with regard to China. 'Today, the winds of change are now spreading through China because pressure is being brought to bear on the Chinese government by environmentalists and foreign governmental financial groups. 'There has been a large growth in the middle class, as managers are needed to oversee the production lines and sell the products. These middle class managers command higher incomes and this is creating a much larger domestic consumer base than expected. Consumer demand is skyrocketing in China. 'Environmental concerns are suddenly in vogue. The upcoming Olympics in China have prompted the Chinese government to make drastic changes in effluent treatment rules. Evidently, four of the five rivers that run through or around Beijing are so polluted that they cannot even be treated to produce drinking water. The government is now cracking down on any polluting industry and that includes the tanning industry. This is all to show the world a good face during the upcoming Olympics in 2008 and to appease both domestic and international environmentalists. 'Many tanners and shoe manufacturers are looking at other Asian countries to make leather and shoes. Vietnam, Indonesia and Thailand are all under pressure to increase production. However, their governments have seen what has happened in China and are now resisting any urge to expand polluting industries. Another problem with moving the hide and leather industries is that moving the tanning production to other countries is not that easy. 'Building a tannery takes years, including the necessary water treatment facilities. Therefore, since tanners have made the investments and built the plants in China, we believe that it would be difficult to find anywhere to go in Asia other than to poor third-world countries, such as India or Bangladesh. As a result, tanners in Korea and Taiwan will once again regain some of the business they lost to China. Tanneries that were not closed in those countries when production moved to China should reap increased leather orders in 2007. We expect to see more American hides exported to Korea and Taiwan next year.' In 2006, 86% of all hides and skins were sold to East Asia (mostly China). Overall there was an increase in the East Asia region generally, along with Oceania. This could offer potential markets for the leather industry that may move out of China due to the difficult margins. There is no doubt that when it comes to market share, China is well to the fore and changes that are occurring in China need careful observation. However, it is likely that China will continue to require the most hides in order to sustain their large tanning and leather industry. China bought ten million cattle hides in 2006 compared with eight million the year before and just under five and a half in 2002 and 2003. Hong Kong took a further 1.35 million, down from a peak of 2.5 million in 2003. Korea takes second place with 3.5 million which is actually down from 4 million in previous years and a 5.8 million requirement in 2002. Taiwan and Mexico are the next two most important customers with Taiwan nearing the two million mark and Mexico with just over 1.2 million. Italy, followed by Thailand hover just under the half million. Footwear imports By 2004, footwear exports from China had increased by more than 17% to 5,885 million pairs and the US was the main destination with 1,742 million pairs. In total, the Asian region increased production by 3.5% and consumption by 0.5%. In North and Central America, footwear production decreased by 8% and imports increased by 6.4%. The US topped the table of leading importers and was second in the table of leading consumers. Footwear consumption in the US was up to 7.3 pairs per capita per year. In South America, Brazil was the only country in the area that increased footwear production. Overall production increased by 89 million pairs. Brazil exported 189 million pairs to 212 countries worldwide worth US$1,414 billion (9% less than in 2005) and produced 755,000 pairs. The domestic market consumed 540 million pairs. By 2006, footwear imported from China (excluding rubber and disposables) had risen to 1.771 billion pairs. More recent statistics showed that US footwear imports from China had increased 8.7% to 201.7 million pairs worth $1.2 billion in January 2007. China is by far the largest footwear supplier to the US, with an 87.2% of total US footwear imports in January 2007, up from an 85.7% share in January 2006. US footwear imports from a number of countries showed substantial growth in January 2007, including Vietnam (9.7%), Taiwan (109.3%), Canada (25.3%), Poland (22.3%) and Slovakia (120.5%). Vietnam is expected to consolidate its position as the second largest US footwear supplier to shift their focus away from the European market. On the other hand, a number of countries experienced a drop with imports from Brazil declining (-21.2%), Indonesia (-9.7%), Italy (-7.6%), Thailand (-9.4%), India (-17.6%), Spain (-13.7), Dominican Republic (-33.5%), Germany (-51.6%), Romania (-54.5%), South Korea (-41.7%), Philippines (-28.3%) and Portugal (-33.2%). US demand for Western European and Brazilian shoes has been hurt by the rising values of the euro and the Brazilian real.