Geopolitics create a fragile market

ILM Editorial blog - Martin Ricker
Published:  29 May, 2014

Can it be only eight weeks ago that we all stood in Hong Kong at the APLF and despite the high raw material prices the general mood was upbeat. The leather industry was buoyant. Everything looked so rosy.

Turn the clock forward through April and May and how different the outlook is.  It’s not that there is going to be another crash or meltdown like we saw in 2008 but a number of factors relating to the world of international politics are having a bearing on the market. Unrest in Ukraine/Russia, Vietnam/China and Thailand coupled with an environmental pollution clamp down in Northern China, unpredictable weather and currency fluctuations are making doing business a lot more tricky.

Bovine raw material prices are finally beginning to fall, much to the relief of many tanners, although higher prices can still be commanded for higher grades particularly for the auto and high-end leather goods markets. Life’s more difficult for traders trying to shift lower grades right now and the sheepskin market has been volatile for some time.

Why are prices falling? Clearly, demand for leather must be slowing. A result of higher prices following the recent record hikes in raw material costs. Consumers are switching to other materials as leather becomes more expensive.

Then there are the geopolitical issues. I understand that currently in Xinji, China’s biggest sheepskin processing area, all tanneries are at a standstill following a clamp down on pollution in the area after new regulations were introduced in March. Currently, 60-70% of the workers have nothing to do. Even the largest players have been forced to stop and raw materials are being salted and stored while the tanners wait for the local authorities to allow them to start up again. The same situation also exists in Wuji a few miles down the road. New Zealand pickled lambskin run prices (last reported at US$120 per dozen) are falling as the Chinese market remains “dead” for small skins and the Russians are not buying.

The Chinese authorities mean business (in Hebei province at least) and some tanners have ended up in jail for disobeying the ban. All this and the recent attempts to stop corruption at Chinese ports and borders is making it harder for materials to enter China legally or illegally I understand.

Vietnam-China unrest

The recent unrest and violence in Vietnam is also a cause for concern. The resulting closure of the border with China has stopped raw materials entering China (possibly illegally) and also blocked, leather, shoe and leather goods components and accessories from China getting into Vietnam. The situation is calmer now but under the surface the tension is still there.

Following a mild winter in Europe and Russia, Turkish tanners headed to Moscow last week for the LeShow fair. Despite the reasonable visitor numbers many buyers were reported to be holding off and waiting for lower prices. If they have stocks from last winter to sell then they can afford to sit tight.

TheSauerReport.com estimates that Turkish ovine tanners will be lucky to do 50% of the business they did last year if the situation in China continues and the troubles between Russia and Ukraine persist. 

For many parts of the industry the business of leather making has become a whole more complicated since Hong Kong. Lets just hope that the politicians and diplomats around the world don’t make it worse.

At least we can look forward to the World Cup – if the Brazilian public allows it to take place without any rioting!

Martin Ricker, Content Director

martin@internationalleathermaker.com

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