Hide prices and state of play in leather value chain

20th November 2020

By: Creamer Media Reporter

     

Font size: - +

Absa’s Retail and Business Banking Division’s head of new-sector development, Justin Schmidt, argues that the recent recovery in the prices of hides and skins would be jeopardised should there be further hard lockdowns to combat the Covid-19 pandemic

 

Input costs, sales volumes and prices are all key to the profitability and sustainability of manufacturers. Owing to the lockdown measures implemented globally to curb the spread of the Covid-19 pandemic, most, if not all, of these have been beyond the control of businesses. The leather manufacturing industry is an example of an industry where manufacturers often cannot control these factors.

Hide and Skin Price Volatility

A major headache for many abattoirs is the fact that the sales prices of hides and skins have been under immense pressure. But for businesses that use hides and skins to manufacture leather products for the clothing, furniture and automotive sectors, this has been a great cost relief.

From their high of R15.65/kg in December 2016, South African hide prices have seen a downward trend, reaching a low of R0.51/kg in July this year. This price level is not economically viable. Consequently, large quantities have been sent to landfill facilities globally. Therefore, it is good news that global hide prices have started to recover and are now trading between R2.00/kg and R3.00/kg in South Africa, depending on the quality of the hide.

The recent price increases are an indication of supply and demand factors at work. The supply of hides has been limited because fewer animals are being slaughtered, as the demand for beef has declined globally because of the struggling restaurant industry, owing to the impact of global lockdowns. Demand for hides, though, has increased as demand from China for finished leather has increased, along with a rise in home décor projects across the globe and a push towards leather upholstery. This imbalance between supply and demand has caused global hide prices to increase. The percentage increases have been quite big for South African hide prices, as they are coming off a low base. South African hide prices are 31.3% higher than a year ago, but they are still 55.2% lower than their 2018 level and 82.3% lower than their 2017 level.

Bounce-Back from Lockdown Shock in South Africa

The leather manufacturing data from Statistics South Africa (to August 2020) gives another indication that leather manufacturing has experienced a nice bounce-back in sales and production post-lockdown. At the height of the lockdown, in April, leather manufacturers experienced a 45% drop in sales, compared with March, and a 49% drop, compared with the previous year. There was a significant increase in August, when the sales value was 75% higher than in April, which is almost a recovery to pre-Covid-19 levels (only 3.7% below March sales).

Leather production volumes in April also experienced a 45% drop, compared with March, and were 58% lower than in the previous year. However, production levels have recovered, with the easing of lockdown restrictions resulting in August production being only 8.5% lower than pre-Covid-19 levels (March 2020).

Further Hard Lockdowns Will Impact Demand

For this value chain of manufacturers, the long-term impact of Covid-19 on demand for products such as clothing, furniture and vehicles remains uncertain. As South Africa is a net exporter of leather products, with the country's biggest export destination being Europe, potential risks to this rebound would be a second wave of Covid-19 infections in Europe, economic shutdowns and the shock these could exert on demand.

At the peak of the lockdown restrictions, in April, South Africa’s leather exports to the rest of the world dropped by 85%, compared with March. In September, South Africa’s exports of manufactured leather to the rest of the world recovered to exceed pre-Covid-19 levels (March 2020) by 21.5%. Compared with South Africa’s peak lockdown period (April 2020), September exports to the rest of the world increased by 710.3%.

South Africa’s exports of manufactured leather have already recovered to exceed 2019 levels, with September exports being 18.5% higher than the figure for the same month in 2019.

As is the case with many sectors, it is key that economies continue to rebound and, hopefully, that there are no further hard lockdowns that impact on local and global economies, which would make planning and margin management impossible.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION