Prices of sheepskin and cattle hides have soared in recent months as suppliers have struggled to meet demand. According to the British Leather Confederation, UK abattoir prices of sheepskin are now pounds 7 to pounds 7.50 compared with just under pounds 1 in autumn 1990. Oxhides (steers and heifers) fetch pounds 40 against a low of pounds 17 to pounds 18 in the first quarter of 1991, although traders and tanners believe the market has now peaked, at least for the moment.
Skins and hides are an internationally traded commodity yet prices are notoriously volatile, lacking the smoothing influence of a futures market. Attempts to establish a futures market have been unsuccessful, due to inflexibility of supply and wide variations in raw material quality.
Normal laws of supply and demand do not apply as skins and hides are a by-product of the meat, wool and dairy industries. In the past 12 to 18 months, demand for leather goods has risen, yet the UK cattle kill was 9 per cent down in 1993 from the previous year and the lamb kill was 7 per cent down. Falling demand for red meat and a significant rise in the live export of UK lambs, particularly to France, are the main reasons.
UK tanners have been left short of quality raw material and prices have risen steeply. However, consumer resistance to higher prices of finished goods has prevented increases being passed on and tanners' margins have been squeezed.
There is little prospect of the by- product status of skins and hides changing. In the UK, the value of a cattle hide is only 7 to 10 per cent of the total carcass and the value of a sheepskin 10 to 15 per cent of the carcass. Farmers are more concerned about selling the meat.
Lack of a homogenous raw material hampers the creation of an international market. Sheepskins are graded according to climate. Higher quality skins from temperate zones (less affected by parasites than skins from tropical areas) are further divided, with UK skins usually fetching a premium price over New Zealand domestics. South African Capes are considered high quality, but the supply is limited.
The quality can also fluctuate, and the way the animal has been treated makes a significant difference. Scandinavian cattle, kept indoors in winter, produce superior hides to those that remain outside.
Strain from mechanised skin removal and an increase in parasitic skin damage since the lifting of compulsory sheep dipping lowered the price of UK sheepskins last year.
Periodic distortions in the market also cause price swings. A recent surge in Continental demand for live lambs has reduced the supply of skins from UK abattoirs. From a trickle five years ago, about three million live lambs are now exported annually from the UK, according to industry estimates. UK farmers are attracted by higher prices paid by French abattoirs for carcasses. Greater consumption of offal in France and the practice of putting British lambs in a French field for two weeks before slaughter, then selling the meat to patriotically minded consumers as French, have boosted demand.
Protectionism also causes supply and demand hiccups. Developing areas with large tanning industries, including India, Pakistan, Indonesia and South America, restrict the export of skins to ensure continuity of supply for their tanners. Lack of competition keeps prices down in the home market, leaving the countries free to top up supplies - and bid up prices - in the freer markets of UK, New Zealand and elsewhere.
Overcapacity in the tanning industry worldwide has caused dramatic shrinkage among European tanners in the past 10 years. Pittards, a quoted UK leather company, recently closed its clothing factory at Abingdon in Oxfordshire, leaving Strong & Fisher, the other quoted leather company, with the only large UK clothing tannery at Rushden in Northamptonshire.
Attempts to improve margins have caused the trade to move into partly processed skins and hides. Not only can the tanner add value, but the quality of the leather is easier to assess.
Sheepskins are collected from abattoirs, salted and sent to fellmongers, where the wool is removed and the skins processed into pickled pelts. They then go to a tanner to be processed into 'wet blues' and finished for sale to glove and garment manufacturers. Hides are limed and then processed into wet blues before being finished and sold to shoe and upholstery manufacturers.
Skins and hides are traded at various stages of production, but the trend is towards trade in wet blues. Price volatility tends to decrease as value is added.
The centre of gravity of the leather industry is also shifting.
Once the Paris fair was the leather world's biggest jamboree, but it has been supplanted by the annual Hong Kong fair in April. Last month's event was the busiest yet. Not only is more leather made into finished goods in the Far East, due to low labour costs, but Far Eastern countries including the Chinese are becoming serious consumers.
Koreans think less of spending pounds 1,000 on a leather coat than recession-strapped Western consumers. The UK tanning industry, which has targeted high-quality markets and invested in wet-blue tanning in recent years, exports leather worth more than pounds 200m a year.
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