After a successful APLF which ended on March 30th, World Leather Business Week Report is publishing for readers of APLF news some extracts from the publication which gives an excellent overview on APLF and the outlook for the sector.
APLF came to an end ...... and over the last two weeks the global leather community has been wholly focused on the Orient, which is the centre of the industry today.
Leather demand remains solid and there are very few people expecting a decline in leather orders or production for 2007. It is quite the reverse, in fact, as most have increased their expectations. This particularly applies for shoe and leather goods production.
Leather prices are rising. Tanners were able — and had all the arguments on their side — to increase leather prices by 5%-15% depending on the article and the starting level. Some have taken one large step while others say they had already moved their price levels step-by-step in 2007 and intend to continue this policy in the coming months.
The leather pipeline is starting to look for solutions to the obvious shortage of adequately priced raw materials. For women's shoes, bovine skins are being considered, while a number of people are also reporting an increased focus on synthetics once again.
Despite the rise in leather prices, profitability remains under severe pressure and export prices are causing the biggest headaches. Many tanners in China are reporting much better revenues in the domestic market at the moment. Higher demand and the rising value of the CNY (Rmb) have helped to increase margins in the domestic markets, while export prices can only be justified by the need to use the production capacity.
As many people mentioned during the show in Hong Kong, it is hard to remember a time in the trade when things looked as positive as they do today in terms of business potential and sales opportunities.
The situation prompts us to challenge whether there is anything that could prove the feel-good factor to be wrong. We have discussed this with many representatives from the retail sector through to the production sector and, at least for the short term (a timeframe of around three months), we would need to make up stories in order to find a dark cloud in the sky. However, it is important that the following are monitored closely:
If the US dollar rate continues to stay well above 1.32 level against the euro, European tanners will continue to suffer. Imports of leather and falling competiveness on the export markets will continue to threaten their business.
Change of fashion. If the ladies' boot fashion comes to an end it will eventually reduce leather demand significantly. The same applies to the handbag fashion.
Changes in materials. If synthetics are really gaining ground and designers reduce leather use, this could slow the demand for leather.
While Europe is having a good run at the moment, a severe slowdown in the US would harm the global economy and, despite the strong performance of the domestic retail markets in the emerging markets, recent studies show that exports to the US still constitute up to 65% of Asian exports.
The recent situation in Japan has raised concerns about deflation again. In other Asian countries, such as Korea and Thailand, consumer spending has pretty much been based on consumer credits which could be interrupted if banks decide to cut the cash flow or if consumers start to default on their loans.
Buyers and sellers remain positive
As far as business activity was concerned during the APLF fair, the general consensus was that not a huge amount of raw material activity was seen. European and Australian suppliers did not have a great deal to offer and American suppliers were unable to find a sufficient number of customers who were willing to accept their present asking levels. In the end, this was no major cause for concern as buyers are quite convinced that suppliers will eventually compromise on their asking levels. Sellers are equally convinced that, with the present leather demand, buyers will finally be forced to give in and will accept the offers during the next few weeks.
Those who expected APLF in Hong Kong to change the general pattern of the market are going to be disappointed. As usual, there will be a number of reports complaining about visitor numbers and activity, but we tend not to agree. The fair had its busy and less busy periods, but it is not a question of how much and how many; it is also about what you do. In the end, we found hardly anyone complaining about activity and work during the show. So the general meeting of the trade simply confirmed that leather demand remains good and the prospects — at least until the summer — remain fairly positive. There is still no word on missing leather orders and the only concern continues to be profitability.
Extracted from World Leather Business Week Report
