The U.S. hides and skins market experienced further price declines throughout 2019, and exports of these products declined in both volume and value compared to 2018, according to a report from the Leather & Hide Council of America (LHCA).
“In addition to systemic problems in the global leather market, which pushed prices lower, the industry contended with macro-level political instability that injected significant uncertainty into the market throughout the year,” the group said.
According to the report, the expansion of the U.S. cattle herd appears to have stalled, but slaughter levels are expected to remain relatively stable, providing ample hides to the market in 2020. However, the spread of the COVID-19 may pose challenges to global supply chains.
In 2019, the U.S. hide, skin and leather industry exported more than $1.17 billion in combined cattle hides, pig skins and semi-processed leather products, representing a $450 million decrease from 2018.
U.S. Department of Agriculture data further revealed that U.S. exports of wet salted cattle hides were nearly $762 million in value, a 30% decrease from 2018 levels. Exports of wet blue cattle hides fell 20% in value from 2018 to approximately $391 million.
LHCA relayed that China was the largest buyer of salted cattle hides, with imports valued at more than $400 million, while Italy was the single largest destination for wet blue cattle hides, with imports valued at more than $122 million in 2019. Other large export markets included South Korea, Mexico, Thailand and Vietnam.
U.S. pigskin exports declined 49% in value, totaling $20.3 million for the year. Mexico was the largest market for U.S. pigskins by value in 2019, with Thailand and Vietnam rounding out the top three destinations. Together, Mexico, Thailand and Vietnam accounted for the vast majority of all U.S. pigskin exports. In fact, LHCA said U.S. pigskin exports to Vietnam increased significantly, rising 779% in 2019 to more than $2.87 million.
Global demand in question
Looking ahead, LHCA said many U.S. hides and skins suppliers are concerned about the global leather demand situation as well as the rise of synthetic products as alternatives to leather.
“The leather industry in general has experienced an extremely tough market for the last several years, which will likely continue in 2020,” the group noted. “Plastic synthetic alternatives that look like leather but are not real leather have taken significant market share away from the material in consumer product areas such as footwear and automobile upholstery.”
In fact, LHCA said the situation is so dire that some lower-quality hides and skins are being composted and destroyed rather than processed into leather -- a trend it expects will continue in 2020.
However, LHCA said industry efforts are already underway to combat misinformation about leather.
Trade issues will likely also continue to affect the industry in 2020, the group suggested.
“In 2018, the Trump Administration levied several rounds of tariffs on imported goods from China, inviting retaliation from the Chinese and sparking 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 diligent efforts from industries in both countries,” LHCA noted.
Currently, most U.S. hides are subject to an additional 5% tariff going into China, and likewise, many Chinese leather products like sofa upholstery and small leather goods are targeted for an additional 25% duty in the U.S. Fortunately, LHCA said most footwear and other major consumer products have not faced additional tariff increases, as originally planned. These goods avoided a proposed tariff increase that was scheduled to take effect Dec. 15, 2019, after the U.S. and China announced that the two countries reached a Phase One trade agreement, which entered into force on Feb. 14, 2020.
“Although the Phase One U.S.-China agreement did not remove retaliatory tariffs in place, China initiated on March 2, 2020, a tariff exclusion process covering nearly 700 U.S. imports, including raw cattle hides larger than 16 kg (HS Code 41015019), which represent the majority of U.S. hides exports to China," the group reported. "At the time of this writing, many Chinese tanners have applied for, and have received, tariff exemptions on these imports, which could provide much-needed relief for the U.S. hide and leather industry.”
Besides the aforementioned factors, LHCA said one complication this year is the COVID-19 pandemic that is placing pressure on global supply chains and hampering trade, particularly with China but also with other parts of Asia and Europe.
“It is difficult to predict the exact economic impact of the virus, but it is likely to be significant, considering labor shortages recorded at ports and in manufacturing facilities abroad, compounded by an observed decline in retail traffic both globally and in the U.S.,” LHCA said.
The number of U.S. COVID-19 cases continues to rise, and a growing number of states have implemented policies that require residents to stay home, which LHCA said is affecting business operations for many industries, including certain companies in the hide, skin and leather industry.
“The long-term implications of these measures remain unclear, but for now, trade continues to move, though that situation could change if ports are forced to shut down or if container availability challenges and congestion issues accelerate,” LHCA said.