Will Leather still feel nice in 2021?

The leather goods market is expected to garner a CAGR of 6.2% between 2020-2025. However, this dustproof, fireproof, crack-proof, fashion material had to weather the effects of lockdowns in 2019. The demand for fashion goods decreased across the EU, UK, the US, and Japan. This forced tanneries in Bangladesh and Argentina to seek financial aid. Production units in Brazil, the US, and Italy also witnessed a double-digit decline.

With car sales declining in UK and EU, automotive leather upholstery manufacturers in the US and Malaysia had to temporarily stall work. Consumer goods brand Burberry faced losses whereas Adidas and Mulberry registered early recovery.

This February, downward price corrections were observed for hides but now they are gradually adjusting to the recovery in demand. During this crisis, many countries revisited their trade deals and sought to optimize their labour-intensive, leather production facilities.

Unsurprisingly the largest producer and importer of leather in the world is China which makes over 4bn sqft per year, more than twice the quantity of Brazil- the second-largest producer. China also registered the highest export growth in this sector among other countries in 2019. 

At present, 30-40% of the leather goods, mostly shoes, are imported from China to majorly Italy, France, Vietnam, and India. Quanzhou or ‘the Shoe City’, makes around 500mn pairs of sneakers annually. China is shifting its leather economy from being export and investment-based to innovation and consumption-driven. 

The third top producer is Italy which exports mainly to the EU. It is also the second biggest importer for raw leather, followed by Vietnam, Hong Kong, France, Germany, and the US.

Russia takes fourth place and India, fifth. India is also the second-largest producer of light leather and accounts for 9% of the world’s total footwear production. Leather contributes significantly to the foreign exchange and its exports include (in order of popularity): footwear, goods, and accessories, finished leather, garments, and saddlery and harness.

India exports majorly to the US, Germany, UK, Italy, France, Spain, Netherlands, UAE, China, Hong Kong, Belgium, and Poland and imports largely for leather shoes, soles, and insoles. 

This year the leather goods are expected to be dearer by 5% after imposition of 10% duty. This move has threatened the survival of many small footwear exporters. Members of the Small Tanners Association have appealed against this duty and sought a ban on importing synthetic leather and rexine.

Recently leather was added to the list of priority sectors. Efforts are being made to reduce the dependency on China. The challenge is to compete at Chinas’ price points with its number of design options.

The sixth spot is taken by South Korea followed by Argentina and the US (the US is also the highest revenue generator for leather goods). In this East-Asian belt, Taiwan has upped its game by partnering with facilities in Vietnam and Bangladesh. Japans’ former import partner, China, which had eventually led to the decline in formers’ domestic leather production, is now being replaced by Italy and France. However, Japan’s demand has remained steady for the last 15 years due to its flat consumer spending.

With new trade routes being forged and governments across the world injecting financial stimulus into the economy, the global leather goods market is expected to grow till 2017. Footwear, luggage, and other goods are expected to fetch over $306bn in this period.

Along with the government registrations and certifications, traders need to draft a contract spelling out the pricing, quality specifications, terms of payment, delivery, mode of transport, etc. for the purchase order. This is where Merchant Trade Guarantee Corporation Company Limited (MTG) steps in as an experienced, competent trade finance solution provider for all credit transactions. Along with providing LCs, BGs, documentary collections, proof of fund documents; they also offer performance and financial guarantees.

MTG has facilitated the arrangement of LCs amounting to millions of dollars and help facilitate exports for the Bangladeshi and Indian leather industry to countries like the U.S.A, China, and South East Asia through top banks like Citi Bank USA, Bank Leumi USA, Bank of Baroda Hong Kong, DBS Hong Kong, OCBC Hong Kong, Indian Overseas Bank Hong Kong, UCO Bank and Bank of Shanghai.

MTG has over two decades of experience in issuing Trade Finance Letters of credit to importers worldwide for leather and other commodities. With its strong alliance with banking and non-banking institutions across the globe, MTG enjoys an unparalleled service record and has gathered scores of satisfied customers since its establishment.