Mr Sothmann, how is the actual market situation as regards U.S. hides and skins?
“The U.S. hides and skins market experienced further price declines throughout 2018, following the woes of the broader global leather industry. In addition to systemic problems in the global leather market, the industry was deluged by macro-level political instability that injected significant uncertainty into the market throughout the year. 2018 was a difficult year for USHSLA members in terms of macro-level public policy issues. The trade war between the U.S. and China, along with other actions taken by the Trump Administration, made it difficult for firms to operate as normal. It is very hard to make business decisions beyond a few months forward if you do not know what the tariff landscape will look like, and that was the case for much of 2018 in the US industry. As of the beginning of 2019, it seems the market has somewhat stabilized for most product selections, though much of the overall malaise in the market continues”.
Can you give us the last figures of U.S. hides and skins exports?
“Due to the U.S. government shutdown in January 2019, the year-end statistics reports for 2018 have been delayed and may not become available for several months. Through October 2018 (the latest statistics available from the USDA), the U.S. exported over $939 million in salted/brine cured cattle hides and another $418 million in wet blue products. These values represent a decrease of -24% in value for salted hides and -14% in wet blue from the same period in 2017. Less U.S. hides were processed into wet blue prior to export in 2018, continuing a trend that began over two years ago”.
Which were the main markets?
“China continues to be the largest market for U.S. hides and skins exporters. Combined with Hong Kong, China imported approximately 50% of all U.S. salted/brine cured hide exports and 31% of wet blue exports by volume. Salted hide export values to China were $491 million through October (31% below the same period in 2017) and wet blue export values were over $128 million (a 19% decrease). U.S. salted/brine cured hides export values decreased to most major tanning markets in 2018, such as Korea, Mexico, and Taiwan.
Italy became the number one destination market for U.S. wet blue exports in 2018. As of October, Italian tanners had imported 1.4 million U.S. wet blue products at a value of $146 million, unseating China as the largest importer of those products by both volume and value. While Italy and China both slowed significantly, exports to Vietnam, Thailand and the Dominican Republic all experienced growth”.
U.S. cattle herd, how is the situation?
“The expansion of the U.S. cattle herd is expected to continue slightly in 2019, albeit at a much slower pace. The growth of the herd may even begin to stall during the year. Historically high beef prices are providing economic incentives for ranchers to harvest animals rather than retain them for breeding purposes. This can already be seen in the high number of female cattle (cows and heifers) in the slaughter ratios towards the end of 2018 and early 2019, suggesting a slowdown in growth may already be underway. Though the herd may stop growing in 2019, slaughter levels are expected to remain relatively stable, continuing the flood of hides available on the market. Through the end of January 2019, the slaughter levels were beginning to drop about 2% compared to the same period in 2018.
According to you, what is the most important challenge of the global leather market today?
“In the eyes of many U.S. hides and skins suppliers, I believe the global leather demand situation is the most important challenge. As demand for leather continues to slump globally, so too will the returns for the U.S. industry. In fact, some of the lower end U.S. hide selections are now so cheap that it no longer makes economic sense for the industry to process and ship those products. More than one supplier in recent months have begun to look at ways of destroying or rendering the low value hides rather than process them for leather purposes. Without any major changes on the demand side of the equation, the problems hanging over the market for much of 2018 will continue into the new year”.
About US and China trade war, have you evaluated the impact to leather industry?
“The Trump Administration levied several rounds of tariffs on imported goods from China throughout 2018, inviting retaliation from the Chinese side and launching a tit-for-tat trade war between the world’s two largest economies. The tariffs have not spared the hides, skins and leather sectors, despite valiant efforts to avoid the fray from industries in both countries. Currently, most U.S. hides are subject to an additional 5% tariff going into China, and likewise many Chinese leather products such as sofa upholstery and small leather goods are targeted for an additional 10% duty in the U.S. Fortunately, footwear was not included on the U.S. target lists, or the damage to our industry would be more severe. The Trump administration has signaled plans to raise the tariffs to 25% if ongoing negotiations do not product result, likely provoking a similar response from China. It is difficult to quantify the damage that has been down to the leather industry in both countries by this issue, beyond the tariffs. I am sure many businesses are holding back from making decisions or investments for the future until they know what the landscape will look like, and this I am sure will have a detrimental economic impact on the industry for years to come”.
How do you see the prospects of next round of negotiation?
“It is difficult to predict where this situation is heading as of right now. The topics being negotiated by the US and China are significant, including a nearly entire reformation of the Chinese government-led economic model. It is hard to see how there will be real progress made on such a large, system wide issue in only 3 months. However, I am hopeful that if they do make progress during negotiations, they will continue to extend any deadlines for tariff increases and avoid escalating the conflict”.