CORRECT:Lambskin prices slump

Article – BusinessDesk

CORRECT:China’s crackdown on polluting tanneries, Russia sanctions drive record slump in lambskin prices

CORRECT:China’s crackdown on polluting tanneries, Russia sanctions drive record slump in lambskin prices

(Fixes currency of salted wool-on skins in 15th paragraph.)

By Tina Morrison

Nov. 28 (BusinessDesk) – Global lambskin prices have collapsed from the first quarter’s record highs, as a Chinese crackdown on polluting tanneries and Russian trade sanctions sapped demand.

The price for third-grade lambskins, a benchmark for leather garments, has fallen below US$50 per dozen from a record high of US$95/dozen in the first quarter of this year, according to Invercargill-based Alliance Group, the world’s largest processor and exporter of sheepmeat. The skins are currently fetching about US$45-$50/dozen with the price expected to decline to US$40-$45/dozen, the farmer cooperative said. Prices generally fluctuate between US$50-$70/dozen.

The leather market is facing multiple headwinds after tougher environmental regulations in China, where New Zealand sells as much as 60 percent of its lambskins, led to the sudden shutdown of many tanneries in April. At the same time, consumer demand has dropped away for leather products such as jackets and handbags, reflecting a slowdown in the Chinese domestic market and a decline in demand from Russia amid trade sanctions over its incursions into Ukraine.

“There have been downturns like this before but not quite as severe,” Carl Alsweiler, Alliance Group’s marketing manager, general products, told BusinessDesk. “The key factor here is demand for leather product has to be strong for the prices to be strong but this time it has been a double hit because we have had a downturn in consumer demand and also quite a large chunk of processing capacity just knocked out of the system in China with these pollution shutdowns.”

That has left many Chinese tanners “holding stock that they can’t process now and they have had to resell their stock on the market,” he said.

China has closed many tanneries because of Beijing’s heightened focus on water and air pollution. The world’s second-largest economy passed its first amendments to the country’s environmental protection law in 25 years in April, following premier Li Keqiang’s statement at an annual parliamentary meeting in March that the government would “resolutely declare war against pollution as we declared war against poverty.”

“Any industry that is considered to be a polluting industry has been under the microscope,” Alsweiler said. “The tanning industry has come into that category and so a lot of tanners that we sell product to have been shut down without warning.”

Tanneries that had already cleaned up their plants will continue to operate while others are being temporarily closed and face increased costs to upgrade their effluent treatment. A large number, though, are likely to remain permanently shut, he said.

The suddenness of the Chinese closures has meant tanneries in other countries, such as Korea, Italy, France, Turkey, India and Pakistan, weren’t able to immediately process the increased volumes flooding the market, as it takes time to build up factory capacity, Alsweiler said.

The shortage of processing capacity had hit other countries which supplied skins into the world market, including Australia, the UK, the Middle East, Africa and China, he said.

Alliance Group was carrying more inventory of skins than it wanted to at its Sept. 30 balance date but had reduced its holdings since then, Alsweiler said.

“We have made good inroads into exporting that stock. At this stage we are relatively happy with our progress there, so it’s not all doom and gloom,” he said. “It’s just the prices are a bit depressed and it’s not likely that they will turn around in a very short time. It could be six to 12 months probably for anything to improve there.”

The drop in prices is likely to flow through to farmers, who can expect to see about $5 shaved off their lamb prices, which are currently fetching about $100 to $110 each, he said.

While the latest drop in prices was one of the most severe in a short six-month period, a collapse in the market about eight years ago had seen the price for third-grade lambskins slip below US$20/dozen, he said.

Prices for other pelts have been similarly affected, with salted wool-on skins, used for products such as ugg boots and floor rugs, down to about US$8-9 per skin, from US$12-$14/skin. Run-grade pelts, which are first and second grade skins, had been fetching levels in excess of US$145/dozen but have now dropped below US$80/dozen.

While demand for leather products had weakened in China and Russia, the other main market in the US was in recovery, Alsweiler said.

(BusinessDesk)

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