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LIVESTOCK AND POULTRY
World Markets and Trade
October 1997
Hides and Skins
Higher prices and increased exports of wet blues benefited the U.S. hide industry in 1997. The United States continues to strengthen its position in the high growth Asian region and European niche markets.
Hides and skins production for the 30 major countries reported by USDA has been relatively constant over the last ten years. Production increased from 1988 to 1990, then declined in 1991 through 1994 because of a downturn in Eastern Europe and Russia. Production started increasing in 1995 and continued throughout 1996 because the increased output in South America and the United States offset the continuous decline in Russian production. In 1997, production is projected to remain relatively stable with a slight increase in South American production offsetting declines in Europe and Russia.
Trade in raw hides and skins between major countries in 1996 decreased slightly compared to 1995 due to lower slaughter. However, in 1996, Korea, Japan, and Italy still accounted for over 50 percent of the world hide imports.
In 1996, U. S. production of bovine hides and skins amounted to almost 1.2 million tons, or approximately 30 percent of the total world production. By the second half of 1997, production was slightly lower than for the same period last year as the U.S. January-August cattle slaughter declined 2 percent to 24.5 million head.
The United States continues to dominate the world hide market, exporting approximately 56 percent of its production, mostly in the form of whole cattle hides. Exports for 1996 totaled 20 million whole hides valued at nearly $1.13 billion. Thanks to higher prices, total export value for the first seven months of 1997 increased almost 10 percent to about $800 million compared to the same period last year, while volume dropped about 3 percent, reflecting reduced cattle slaughter. In 1996, Korea, Japan, Taiwan, Mexico, and China purchased approximately 86 percent of total U.S. exports of whole cattle hides. Korea was by far the largest purchaser of U.S. whole cattle hides, buying over 8 million hides, or about 40 percent of total U.S. exports. It has also been a steady purchaser with imports ranging between 7.5 million and 10.3 million whole cattle hides per year for the last ten years. Taiwan, the second largest purchaser of U.S. hides, edged out Japan by buying almost 3 million pieces, while Japan dropped to third place importing about 2.4 million pieces. Mexico squeezed out China for fourth place by more than doubling its imports of U.S. cattle hides from 900,000 in 1995 to over 2.1 million in 1996. Although China dropped to fourth place in 1996 it still increased its imports of U.S. hides by a healthy 22 percent to almost 1.7 million pieces.
During the first seven months of 1997, the export value of U.S. whole cattle hides to these major markets increased, but only Korea and Mexico increased the quantity imported C Korea by 2.5 percent and Mexico by 6.3 percent. U.S. hide exports for 1998 are forecast to decrease slightly due to tight supplies. However, as the world demand for leather continues to increase, the outlook for U.S. hides remains bright. China and Mexico, in particular, continue to expand their demand for imported hides as they enter new export markets with a larger variety of leather products.
Markets for U.S. Hides in a Snapshot
Korea is by far the biggest customer for U.S. hides, absorbing almost 40 percent of bovine hides and skins exports. U.S. suppliers increased their market share significantly to 86 percent (volume basis) in 1996, compared with 80 percent in 1995 and 75 percent in 1994. To help the local tanners compete with new aggressive competitors, the Korean government reduced the tariff rate for all bovine hides and skins from 3 percent to 1 percent for the first half of 1997, and later extended this reduction to the end of the year. This measure benefited U.S. hides. During the first half of 1997, U.S. exports to Korea increased by almost 4 percent over the same period in 1996.
Taiwan increased its imports of U.S. whole hides to almost $200 million in 1996, or 72 percent of its total hide imports. This increase reflected higher prices as the quantity decreased slightly. Higher prices also increased the value of Taiwan's U.S. hide imports for the first seven months of 1997 by over 17 percent to almost $123 million compared to the $105 million for the same period last year. In recent years many of the footwear firms have relocated from Taiwan to China searching for lower labor costs. However, since the quality of finished leather from Taiwan is considered superior to the Chinese leather, Taiwan's demand for U.S. hides is expected to remain high to meet China's increased orders of finished leather. According to Taiwanese importers, they are satisfied with the superior quality of U.S. hides and are willing to pay a 3-5 percent premium for the U.S. product.
Although U.S. exports of whole cattle hides to Japan increased by almost $400,000 during the first half of 1997, the volume dropped by almost 7 percent compared with the same period last year. This trend appears to be a continuation of the 1996 downturn resulting from a combination of a strong dollar, a weak yen, and a stagnant leather market in Japan. Experts do not foresee any increase in Japanese hide imports in the near future.
China's imports of hides and skins, including those from the United States, remain strong. In 1996, the United States supplied approximately 40 percent, compared to 34 percent in 1995. During the first half of 1997, Chinese imports of whole hides dropped almost 10 percent, to less than a million pieces; however, the value increased almost 12 percent due to a substantial increase in unit costs to over $62 per piece. The drop in whole hide imports from the United States was almost offset by increases in its imports of U.S. wet blue hides. Preference for wet blue hides will probably continue to expand and offset future reductions in demand for raw hides.
The demand for raw hides in Hong Kong dropped almost 20 percent to about 500,000 pieces in 1996 and continues to fall in 1997. This is a result of the weak market for leather products from Hong Kong, mostly exported to China and a drop in Chinese demand for re-exported hides. The United States still supplies about a quarter of Hong Kong's bovine hides.
In 1996, Mexico imported almost $105 million of bovine hides and skins from the United States, making it the fourth largest customer after Korea, Japan, and Taiwan. Imports have increased about 9 percent over the first six months of 1997, compared with the same period in 1996. Last year, Mexico processed about 4.5 million bovine hides. About half the hides used by Mexico's leather industry are produced locally while the other half is imported, mostly from the United States. As the Mexican industry expands, so will its imports of U.S. hides. Local hides are typically branded and come from a much warmer climate where the quality is not as high. As of the beginning of September there had been almost a twenty percent increase in Mexico's imports of U.S. hides. Although well over ninety percent of the imports are still whole raw hides, the growing trend will be to import more wet blues.
Image: U.S. Raw Hides Still Big Export, but Wet Blues Gaining
Although the European Union is a large, high income trading block, it does not compare with the major Asian and Mexican markets for U.S. hides because of its near self-sufficiency in hides. U. S. exports to the EU increased from 1.6 million pieces of whole hides and wet blues in 1995, to 1.7 million pieces valued at over $80 million in 1996Cof which approximately $43 million were wet blues. Italy maintained its position as the EU's major importer of U.S. whole hides and wet blues by taking approximately 60 percent of the EU's imports of approximately 800,000 whole hides and 940,000 wet blues from the United States. In addition to whole hides and wet blues, Italy buys about 60 percent of all the U.S. calf and kip skins exported. During the first half of 1997, U.S. exports of both whole hides and wet blues to the EU declined from approximately 1 million pieces to roughly 650,000 (about 40 percent) compared with the same period in 1996. This was attributed to the combination of a rapid rise in hide prices and a strengthening of the U.S. dollar.
Wet blues are an intermediate product for the tanneries; it consists of hides which have already undergone the basic tanning operations and have been rinsed with chrome solutions to avoid decomposition.
Wet blues are playing a more important role each year in world hide markets. Tanneries importing wet blues save on the cost of new automated computerized equipment needed for the blueing process, avoid costly investment in pollution control measures, lower their investment in transportation costs since blue-stock weigh less than fleshed hides, and usually receive better quality leather since the stock is tanned more quickly after slaughter, thus reducing staleness.
Although U.S. exports of wet blue hides is about 10 percent (volume weight) of the total hides exported, it is growing in importance and might eventually rival exports of raw hides in the not too distant future. Consequently, it should be considered in the overall structure of the U.S. hides exports. From January to July of this year, total U.S. exports of wet blues increased over 20 percent for the same period last year. From January to September of this year, total U.S. exports of wet blues hides surpassed 2 million pieces. Korea, China, Mexico, and the Dominican Republic have all increased their imports of U.S. wet blues during that period, and their combined imports of these wet blues expanded over 84 percent for a total of over one million pieces. Korea increased its imports of wet blues by a dramatic 80 percent to the equivalent of almost 800,000 pieces during the first half of this year, while China increased its wet blue imports for the same period by almost 50 percent to almost 230,000 pieces. To date, official imports of wet blues account for approximately one quarter of all U.S. hides imported by China. Also, nearly all hides and skins entering China unofficially through Hong Kong are wet blues. Chinese increased preference for the imported wet blues over whole hides is because the former are usually of higher quality and are more suited for making better quality shoes and bags.
Environmental concerns are also prompting some countries to increase their wet blues= imports to comply with new national legislation concerning the disposal of residuals. Since processing wet blues does not adversely affect the environment as much as processing raw hides, many tanners are considering the direct importation of wet blues as a viable option to address the environmental problems of the industry. The Mexican government, for instance, has passed strict environmental laws governing the treatment of all residual waters. Consequently, the Mexican tanners and leather manufacturers have been increasing their imports of wet blues. As of mid-September, this number had increased from 18,000 pieces a year ago to almost 40,000. This trend is expected to increase dramatically in the near future. Practically all Mexican tanners will be affected by the new regulations.
These environmental concerns being voiced in many countries and are prompting tanners to buy more wet blues form the United States. The Dominican Republic increased its imports of U.S. wet blues during the first half of 1997 to $3.9 million from $1.6 million for the same period in 1996, while importing only $1.7 million U.S. raw hides the first half of 1997. As the Dominican leather industry continues its dramatic increase so will the preference for wet blues over raw hides.
Argentina's hide production for 1998 is expected to drop to 286,000 metric tons as a result of a drop in cattle slaughter C the lowest level in the past 14 years. Although the Argentine cattle heard is very large, practically all hides are processed domestically into leather since high export taxes discourage exports of raw hides. Thus, Argentina has not developed as a strong competitor to the U.S. hide industry. The export tax on hides, however, provides artificially low hide prices for the domestic leather producers and makes Argentina a formidable leather exporter since the relatively small domestic demand for leather has forced the industry to become primarily export oriented and the very low cost of domestic hides gives the tanner a very strong competitive edge. Leather exports totaled approximately $ 800 million in 1996, of which over 80 percent was exported primarily to the United States, Hong Kong, Italy, and Brazil.
Brazil is the United States' largest competitor in the international market for bovine hides and skins. Exports of hides and skins are expected to increase from 174,000 metric tons in 1996 to approximately 180,000 metric tons in 1997 and 185,000 metric tons in 1998. Although Brazil exports hides and skins to over 60 countries, nearly 80 percent go to six countries: Italy, Portugal, Spain, Netherlands, Hong Kong, and the United States. The European Union accounts for approximately 73 percent of all hide exports. Recently, the industry decided to concentrate marketing efforts in Portugal to penetrate the European Union market, and in Asia, the most promising market for Brazilian hides and skins. Although Brazil is a net exporter of hides and skins, imports will probably increase due to the lower cattle slaughter. Although at a disadvantage compared to MERCOSUL countries, the United States has some good market opportunities and can increase its market share due to the quality of U.S. hides. To date, U.S. exports of hides and skins to Brazil has more than doubled from 825 metric tons in 1995 to an expected 1,800 metric tons in 1997.
Australia's hide production ranges from 7 to 8 million pieces, of which approximately 80 percent is exported. Of the 93,000 metric tons exported in 1996, approximately 16 percent went to Japan, 14 percent to Italy. and 11 percent to China and Hong Kong. In 1995, approximately 26 percent went to China and Hong Kong. The Australian tanning industry is expanding and recently established a hide improvement scheme to expand the local industry. This scheme should help alleviate problems that have downgraded Australian hides due to damage from horns, barbed wire, brands, ticks, and careless abattoir removal. Australia hopes these measures will improve the international acceptance of their hides and skins.
Hides and skins production in Russia has dropped with the decline in cattle numbers and was 11.2 million pieces in 1996. Decline in production will continue in the near future and is expected to decline by 4 percent in 1997 and 11 percent in 1998. Since internal consumption of hides has declined dramatically, exports of hides and skins rose in 1996 to 212,000 metric tons compared with 196,000 metric tons in 1995. Exports are expected to reach approximately 200,000 metric tons in 1997.
Canada exported about 96,000 metric tons of bovine hides and skins in 1996, and will probably export approximately 98,000 in 1997. Over half are exported to the United States, about 20 percent to Taiwan, and 8 percent to South Korea. Conversely, the United States supplies about 90 percent of Canadian imports of approximately 35,000 metric tons of hides and skins.
Canada is not a strong competitor since strict environmental codes and a lack of hide processing facilities limit the number of hides that can be processed.
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