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Hides and Skins
The Asian crisis is still affecting U.S. hide exports in 1999. However, 2000 should be better for the U.S. hide industry as lower slaughter, stable U.S. domestic consumption, and a growing Asian demand should increase hide prices to more profitable levels.
Overview
Hides and skins production in countries tracked by the USDA continued to decline for the third successive year in 1999. Production gains in the United States, Brazil, China, Argentina and Canada, were more than offset by lower production in the European Union, Russia, and Australia. Production is forecast to continue dropping in 2000 as cattle slaughter is expected to dip 1 percent, mostly in North America and the European Union.
Trade, on the other hand, is slowly rising as Asia gradually pulls out of its financial crises. Although the region's economic problems continue to plague Asia's leather industry, Korea, China, Taiwan, Thailand, and Japan are increasing their hide imports this year. In 2000, further import growth is expected in Korea, China, and Thailand, which will contribute to put upward pressure on prices. Import levels, however, are not expected to increase in Japan and Taiwan.
United States
U.S. production of bovine hides in 1999 is estimated at 999,000 tons, a slight increase from 1998 due to higher slaughter rates. For 2000, however, hide production is projected to drop almost 5 percent to 950,000 tons, the lowest U.S. production since 1993, as cattle slaughter declines.
U.S. hide prices fluctuated wildly
throughout 1999. The effects of the Asian crisis continued to be
felt during the beginning of 1999 as Korea imported fewer hides
for its tanning industry. As the largest U.S. bovine hides'
customer, Korea's sluggish demand for hides during that period
kept U.S. hide prices depressed. These prices hovered around
$59/cwt during November-December 1998 and slid to the mid $50s by
February, despite reduced cattle slaughter. As of late September,
increased Korean demand, and higher consumption from the U.S.
auto industry for new car leather upholstery, drove hide prices
to more than $71/cwt--a respectable 30 percent increase from
mid-February, despite higher U.S. slaughter rates.
Hide prices are expected to continue rising throughout 2000 as U.S. cattle slaughter is estimated to peak in 1999 and decline throughout 2000. In addition to this decline in hide supplies, upward price pressure will also come from an expected 2- percent increase in world consumption from 1998 to 2000, and higher Korean demand. This augers very well for U.S. hide exporters.
Many countries prefer U.S. hides and increase their purchases when U.S. prices fall and became competitive. The reverse is also true; countries seek alternative sources when U.S. prices rise, as they recently have. From January to August, 1999, U.S. total bovine hide exports dropped 10 percent to about $610 million compared to the same period last year. Of the major importers, only Korea and Taiwan purchased more U.S. hides this year than during the same period last year: Korea by 15 percent and Taiwan by 11. Meanwhile, Mexico's purchases dropped 13 percent, and China, Japan, and Italy by a third.
Total
U.S. cattle hide exports for 1999 are expected to drop 2 percent
to 436,000 tons. For 2000, exports of U.S. hides are projected to
dramatically drop an additional 11 percent to 387,000 tons, due
to low cattle slaughter, strong domestic demand, and high U.S.
hide prices.
While exports of U.S. whole hides declined from January to August, 1999, exports of wet blue hides increased 8 percent to more than $160 million. Korea, China, Italy, Taiwan, and Hong Kong account for about 80 percent of sales with Korea alone accounting for 30 percent.
Since wet blue hides are more suited for better quality products and generate fewer pollutants than raw hides, demand for wet blues is likely to continue rising and may eventually comprise half of total U.S. cattle hide exports.
Major Markets for U.S. Hides
Korea's tanning sector contraction exceeded that of other sectors during the Asian economic crisis. Although improving, full economic recovery will take time. The industry, composed principally of small-to-medium sized companies, nearly suffocated for lack of credit during the financial crisis and recovery depends on demand by leather end-users in Pacific Rim Countries, including Hong Kong, Indonesia and Vietnam.
Korea is by far the largest purchaser of U.S. cattle hides, consuming more than a third of total U.S. hide exports. Imports are projected to increase 5 percent in 1999, and another 2 percent in 2000, to 245,000 tons. The United States supplies Korea with more than 80 percent of its hide imports, making it by far its largest supplier.
Korea's tanning industry responded to a critical self assessment of vulnerabilities exposed during the economic crisis by refocusing production strategy toward producing value-added products. To succeed in this strategy, Korea must import higher quality hides, a potential opportunity for U.S. suppliers.
In Mexico, the government implemented new environmental regulations requiring the installation of adequate water and waste disposal facilities. Consequently, many Mexican tanneries have left the industry while others have increased imports of wet blue hides which require less processing.
With Mexico's domestic footwear industry in the doldrums, U.S. hide exports to Mexico dropped 13 percent to 1.8 million hides during the January to August, 1999 period. Mexican tanneries that continue to be successful are those which supply leather to the few domestic footwear companies with export markets. With hide consumption for 2000 projected to increase slightly, opportunities will exist for U.S. hide exporters, the main supplier of hides to Mexico.
China is a major exporter of finished leather products, generally produced from high quality imported hides. It imports about half its raw bovine and wet blue hides from the United States, and between January and August, 1999 imported $98 million compared to $102 million for the same period in 1998. Total Chinese imports are difficult to estimate since many hides are transshipped from Hong Kong. Although China's tannery sector continues to expand, higher U.S. prices will likely persuade China to seek quality hides from other sources, mostly Kazakhstan, Canada, Kyrgystan, and Australia.
Since Hong Kong's pollution laws are very strict and land very expensive, there are only one or two tanneries left. Consequently, about 97 percent of the 71,000 tons of bovine hides imported in 1998, valued at $62 million, end up in China. Hong Kong's bovine hide imports are projected to increase to 74,000 tons in 1999, and to 76,000 during 2000.
Bovine hides from the U.S. and Italy have been competing neck and neck in Hong Kong, and the respective market shares, in quantity, are more or less equal. However, the United States provides mostly high quality full grain hides, while Italy supplies the lower-priced split layer type. In value terms, the United States is Hong Kong's largest supplier of bovine hides with approximately 36 percent of the market in 1998. Unless U.S. hide prices become uncompetitive, this dominance will probably continue in the foreseeable future due to the higher quality of U.S. hides.
Taiwan is the second largest purchaser of U.S. bovine hides after Korea. The United States provides Taiwan with almost three quarters of its hide imports and U.S. hide exports to Taiwan grew 6 percent to more than 2 million hides during the January to August, 1999 period. Taiwan is by far the largest consumer of U.S. grain split wet blue hides, importing about half of total U.S. exports. Although total U.S. hide sales are not expected to grow in 2000, U.S. wet blue sales to Taiwan, which amounted to 500,000 hides in the first half of 1999, and are expected to continue increasing during 2000.
Japan's overall demand for imported hides and skins in 1999 continues to stagnate due to its slow economic recovery. As a result, U.S. cattle hide exports to Japan fell by a quarter to 650,000 hides from January to August, 1999, compared to the same period last year. Consequently, the general outlook for increased U.S. hide exports to Japan is not encouraging due to low domestic demand and greater competition in the tanning industry from lower-wage countries
Of the European Union countries, Italy is the only major market for U.S. hides. It is the seventh largest consumer of U.S. whole cattle hides, and the largest consumer of U.S. calf and kip skins, consuming 40-45 percent of that category. However, as U.S. hide prices increased in 1999, Italy's demand for U.S. whole cattle hides and calf and kip skins decreased by one-third. U.S. cattle hide exports to Italy are down 39 percent to 500,000 pieces, and calf and kip skins down 24 percent to 640,000 pieces for the January to August, 1999 period.
Italy's principal hide suppliers have been mostly France and Russia, with about 25 percent each, and the United States with 5-10 percent. Italian demand for bovine hides is very elastic and higher U.S. prices will make it more difficult to penetrate this market. Domestic consumption has also fallen as the status symbol of the moment has switched from high quality leather goods to electronics. This trend is expected to continue during 1999.
With the exception of Spain (importing 180,000 pieces during January-August, 1999), other European Union countries do not import large quantities of U.S. hides. Projected lower U.S. production and projected lower EU hide consumption for 1999 and 2000 are not encouraging signs for U.S. hide exporters to that region.
Due to the continued decline in slaughter numbers of both cattle and buffalo, Thailand's domestic bovine hide production is forecast to decline further to 40,000 tons in 1999 and 38,000 tons in 2000. About 120 tanneries presently produce leather from domestic and imported raw hides, and domestic consumption in 2000 is forecast to rise by 3 percent in anticipation of an increase in both domestic and export demand for leather products. Domestic consumption of raw hides in 1999 is estimated to regain 7 percent from a slump in 1998. Meanwhile, exports of finished leather goods (especially shoe and accessory products) have grown by 10-15 percent in 1999 thanks to improved product development.
Declining supplies of domestic raw hides increased Thai tanneries' dependency on imported raw hides, and major suppliers include China, Australia and the United States. Generally, Chinese raw hides are inferior in quality, but cheaper than those from the United States and Australia.
Decreasing domestic hide supplies and increased production of leather goods should increase Thailand's raw hide imports to 120,000 tons in 1999, and 130,000 tons in 2000. U.S. exports of bovine hides to Thailand increased 27 percent to 237,000 prices during the January to August, 1999 period, compared to the same time last year.
The United States has 15 percent of Thailand's market share, while China and Australia account for about 30 and 20 percent of total imports, respectively. Trade sources also noted that U.S. market share may increase to 20 percent in 2000 with increased demand for better quality U.S. hides.
Competitor Activities
Australia's cattle hide production ranges from 7 to 8 million hides annually, of which approximately 70-80 percent is exported, mostly to Japan, Italy, Hong Kong, Thailand and China.
Cattle hide exports are valued at approximately A$500 million annually. The tanning industry is expanding and generating additional competition for U.S. hide exporters in third country markets. However, lower cattle slaughter during 1999 and 2000 is projected to reduce Australia's hide production by 6 percent to 160,000 tons during 1999 and another 1 percent to 158,000 tons during 2000, thus reducing Australia's supply of exportable hides.
Argentina's domestic consumption is forecast at 300,000 tons in 1999, and 285,000 tons in 2000, slightly lower than the total output. However, since export duties on raw hides will be eliminated on January 1, 2000--largely the result of the EU claim before the WTO to stop Argentina from protecting its tannery industry--it is difficult to predict the impact on exports. Domestic prices of hides will probably increase to reflect a more competitive global market, and the local tanning industry, with more than 300 operations, will probably shrink due to loss of this protection. This could free a substantial number of hides for export.
Argentina exports about 80 percent of its total leather production, amounting to $760 million in 1998, 15 percent lower than the previous year. The major markets were the United States, China, and Italy.
Brazil is the world's second largest producer of hides after the United States, and the current outlook for 2000 calls for a 5 percent production increase due to a continued slaughter increase, an economic rebound, an expanding footwear industry, and higher exports.
Hides and skins exports are projected to increase by 5-percent during 1999 to 230,000 tons. About 75 percent of Brazil's hides and skins' export volume are "wet blues". Italy is the Brazil's major market, taking 35 percent.
For further information, contact José Rivera, (202) 720-1349.
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