Skins supply chain deemed “price-inelastic”
According to Mintec’s Nick Peksa, the price of hides and skins tends to be volatile due to supply-side fluctuations. "The supply of skins is price-inelastic and is determined by the demand for meat products and the amount of livestock that is available for slaughter," he tells Spend Matters.
"Cattle hides, a by-product of the beef industry, represent approximately 5-15% of the animals' total market value,” he explains.
"As hides are produced as a direct consequence of both the meat and dairy trade there is a strong correlation between global red meat and dairy product consumption and the supply of leather."
Mr Peksa goes on to say that cowhides are the key cost driver for the price of leather, accounting for 60% of the production costs.
"Other significant input costs include overheads (20%), chemicals (10%) and labour (7%)," he says. "In general, hide prices from Europe are more expensive than South America and China, mainly due to the size of the cattle herd in those regions."
He points out that the global hides and skin market was deeply affected by the international global financial crisis of 2008 and 2009, when a sharp reduction in leather demand affected products such as shoes, the automotive, and furniture upholstery industries.
However, while he notes that the current market price for hides may not be showing the most interesting price movements, he claims they "certainly are not hidden in the trough of 2009 anymore".
Mintec is a supply chain information provider based in the
UK.
