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KENYA: Chinese leather company is showing interest in Kenya

China, the world's biggest buyer and processor of hides, will implement new import duties on raw hides from 1 May to force its polluting tannery sector out of business.Most Chinese tanneries are expected to relocate to Vietnam or India but at least one is likely to land in Kenya.

Representatives from Beijing-based Huiding Leather have made two trips to the country, most recently in December, to scout for suitable locations. They are considering an investment of between $2-3 million, assistant manager Cheng Wangang told Business Daily.

In May 2007, only half of Kenya's 15 tanneries were operating due to the shortage.The shortage could ease however. One of the main causes was mounting imports by China, despite measures by Kenya to stop the leather raw material from leaving the country by imposing a 20 per cent export tariff. China's purchasing of raw hides from Africa increased by around 20 per cent last year, estimates Song Xianwen, director of the Shanghai Leather Technology Association, with a third coming from Kenya and Egypt each.

The government has, however, raised the duty on raw hide exports to 40 per cent from January 1, which could keep more within the country.

Huiding's Mr Cheng says the increase in duties is "the primary reason" for the firm's planned investment in Kenya. The costs of producing leather in Kenya would be more than 10 per cent higher than in Huiding's Beijing factory, pushed by higher rates for electricity and water.

Importing chemicals for processing the leather will also be costly for the firm. While tanning products have increased in price globally, Chinese companies have access to a well-established supply chain that helps keeps costs down.

But Huiding Leather also wants to guarantee a stable supply of raw materials. "If we operate the tannery ourselves, supplies of raw hides from Kenya and production volume can be guaranteed," says Mr Cheng.

China is the world's leading leather producer and consumer, using about 680 million square metres of leather each year and employing almost two million people to makes shoes, upholstery for furniture and cars, as well as bags, clothing and other products.

But it can only meet half of the demand for cattle leather and 30 per cent of demand for lamb leather through domestic supplies, says the China Leather Industry Association.

The country's leather supply shortage has been compounded by the relocation in recent years of US, European and Japanese tanneries to the country, seeking to benefit from lower labour costs and less stringent environmental regulations.

Typically, China relies heavily on imports of US raw hides, which accounted for about 65 per cent of the total last year.

But when import duties of 22.7 per cent are applied to these hides from 1 May 1, they may become too expensive, say industry experts.

"It's going to take a while for the tanning industry to move to lower cost places," says Dick Veale, vice president of exports at a major US hides firm. "Until then, Chinese tanners will be forced to pass on the higher costs to shoe makers and other customers. These firms say they can't absorb those prices, particularly with weaker demand from the US economy this year."

That could mean some Chinese traders will be prepared to pay higher duties on Kenyan hides as demand drops for the more expensive US hides. A short-term rise in US hide prices last year, driven by strong demand in emerging economies like Russia and Korea, already triggered increased buying of Kenyan hides. Some shoe makers preferred to switch to synthetic materials however, rather than buy lower quality leather.

Both US and Chinese leather experts are unsure how the global trade will look in a year's time. Mr Veale believes China will no longer be buying a third of US hides. Ms Song believes "China will definitely import more from Africa", given that African hides cost around 30 per cent less.

In the long term, China's import tariff on raw hides should boost demand for higher value finished leather although African producers are at a strong disadvantage in this area. The continent has about 15 per cent of the world's cattle population and about 25 per cent of the world's sheep and goats.

Source: Agencies • News Courtesy: BharatTextile.com