CATTLE hide prices in Australia and around the world have continued to slip badly during 2018 – in some categories falling below the industry’s last major market slump experienced during the Global Financial Crisis in 2009.
While isolated, credible reports of hides being dumped as landfill rather than sold into the tanning market have emerged in recent weeks, in both regional Queensland and Western Australia.
In both examples, transport costs to ship the hides to sites further south for salting and preparation had made sales of lesser quality ticky hides for leather production uneconomic, at current market prices.
The Northern Cooperative Meat Co singled-out declining hides value for mention in its annual results reported on Beef Central last week – with the processing company logging a $7 million loss for its financial year ended June 30.
Beef Central last scrutinised the reasons behind the falling hides market in this story – “Global hides market a complex business, but China still drives the bus” – back in February, but prices have continued to deteriorate as the 2018 year has unfolded.
Hides trader and industry consultant Ross Barker said Australian hides today were as low as he had ever seen them in his 30 years in the business.
Some categories were now lower than the last major hides downturn during the Global Financial Crisis, when the market bottomed out in 2009.
He said when production costs (transport, salting, grading, packing in containers and shipment to port) were taken into account, some Australian hides were breakeven, at best, when sold at current rates.
The best large hides out of southern Australia that were worth up to US$110 at the peak of the market back in 2014 are today worth less than US$40. Bigger Queensland hides had gone from $50-$60 back to US$15-$20 over the same period, after starting the year around $35. Lighter weight Queensland hides could now be worth as little as US$8.50 into China, while Victorian, better quality smaller hides were making US$20-$25.
“Go back 20 years or so, and cattle hides were worth about 10 percent of the overall animal value,” Mr Barker said. “Hides value used to be a factor in what cattle were worth to a meat processor, but today it is becoming insignificant in the scheme of things,” he said.
Some buyers had walked away from purchase deals as the hides market continued to decline during 2018.
“There’s been big corrections seen in hides values before – the GFC era and the Asian currency crisis in 1997 – but in the past, hides prices have always come good again, after the slump,” Mr Barker said.
“This year’s price correction has been different. Normally what happens is that hides users just stop buying. This time, they are continuing to buy, but only at very low prices. The reality is that buyers could pay more, but don’t have to, because they have no demand pressure on them, and they’re getting offers on hides from all round the world.”
If there were any positives at all in the current market, it was that buyers were ‘at least still prepared to buy hides,’ but that price be uneconomic, he said.
Mr Barker said the subject of destruction of lower quality hides had been scrutinised in industry circles this year, in order to try to rebalance supply and demand. But there was still a cost attached to disposing of hides in landfill.
“Some hides producers have done some investigations, and have come back with some alarming figures. It’s not that easy or cheap to get rid of a hide, in an environmentally responsible way. Rendering might provide a partial solution, but it would be difficult to render really large numbers of hides.”
In the current market, the cost of consigning lower quality hides to landfill could in some cases be higher than the cost of selling them into the leather processing market, and meatworks did not have the ability to stockpile hides during periods of poor prices.
“It can become a bit of a least-loss situation,” Mr Barker said. “That’s a debate that’s going on at the moment.”
Cost to handle hides rises
The cost of processing (salting) hides in Australia was also going up, because of the environmental management issues associated with responsibly disposing of the salty brine left over after treatment, he said.
Processing hides to salted stage in Australia could now cost between $10 and $15 when transport from regional meatworks to processing facility, and then to the container terminal at the port were included.
Factors driving hides prices
A number of factors were driving hides prices worldwide, Mr Barker said.
Firstly, global beef production was on the rise, particularly in the US and South America, pushing more hides onto the global market, at a time when demand was declining.
Earlier this year, better quality hide prices had held up better than lower-quality descriptions, because of relatively strong demand from the motor industry for leather seats. But since about October, even the motor vehicle segment had suffered, because of a downturn in new car sales as consumer confidence levels had shifted.
The rapid development of higher-quality artificial leathers had also impacted the genuine leather market, Mr Barker said.
“The shoe leather market has been severely damaged,” he said. “When leather prices reached their last peak back in 2014, manufacturers invested in the development of new, much better quality synthetic leather, and shoe designers ‘designed leather out’ of their shoes, using new products like micro-fibre.”
“Everybody thought that when leather prices reduced, shoe designers would return, but it hasn’t really happened. And when they started using the synthetic materials (in large, consistent-shaped rolls), they were able to automate their manufacturing lines with robotic cutters, instead of having to deal with irregular shaped cattle hides. It took a lot of labour cost out of the shoe manufacturing business.”
Tighter environmental regulation of the tannery industry, as well as rising labour costs, had also forced tanning costs higher in China, and reduced processing capacity.
This had also promoted some Chinese tannery business to move offshore. Tariff issues on finished goods between the US and China had also contributed. While China was the dominant customer for Australian cattle hides three or four years ago, more of that business was now being shifted to other destinations like Vietnam, Thailand India and Bangladesh, where labour was cheaper, and environmental costs were not so great.
Mr Barker said Chinese hides buyers were building stock for processing after returning from Chinese New Year holidays, which could create a lull in demand for Australian hides early next year.
US hides also under pressure
A well-known weekly US hides industry report last week referenced the slowdown in automotive sales the last three or four months, which had slowed requirements for most automotive tanners, resulting in recent softening of prices for better quality hides.
US processors had made further adjustments to offer prices recently in an effort to bring asking prices back in line with actual trading levels. US asking prices started last week at levels down $1-$2 from the week prior.
“Current trading levels on some lower-quality cowhides are bordering on the hide having no value,” the US hide market report said.
“Several sources have shared that current price ideas from buyers on certain selections will barely cover the freight and cost to process the hides, and this is leading to thoughts there is a good possibility we will see more US hides rendered very soon,” the report said.