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Leather market caught in Euro whammy

Vishnu Pandey  |  New Delhi/ Kanpur 

The euro zone crisis has severely eroded the export market of city’s leather industry, which runs to the tune of Rs 7,000 crore annually. As the manufacturers and exporters were recovering from the slowdown in the US market, finding solace in European markets, they have received an unanticipated setbackdue to the Euro upheaval.

The depreciation in Euro to around Rs 57 from Rs 68-70 earlier has also led to narrower margins for exporters. Europe accounts for almost 80 per cent of leather exports from the city, especially in the backdrop of US economic slowdown which engulfed the globe last year.

“Exports have slowed down due to the decline in the exchange rate. The impact is severe on our operations and the decline in Euro may lead to lay-offs or selling of goods at cost price, which will, in turn affect profitability,” said Mukhtar-Ul-Amin, CEO of Superhouse Tanners.

Elaborating on the fallout of the drop in leather exports, Amin said that the fall has put pressure on price. Additionally, importers are reducing the size of their inventory due to which the buyers want delivery in 40 days against the earlier duration of six months.

Consequently, a large number of exporters have been forced to fly their consignment against using the sea route, resulting in increased transportation costs. Therefore, the cost of exporting one jacket has increased from about sixty cents to two dollars.

What worries him more is that buyers are going slow. That’s because even if they buy goods in dollars, they will have to shell out more euros for every dollar, as the currency has depreciated against the US dollar. This creates uncertainty for the future as buyers may go slow till there’s stability.

A weaker euro has also hit engineering goods exports from the city as many companies had pegged their exports to Europe in euro. This would hit profits and companies are trying to counter it by taking hedges.

To tide over the crisis and to insulate from similar upheavals in the global markets, the state exporters are exploring other export destinations, especially Africa and Latin American nations.

The apex SME body, Indian Industry Association (IIA) regional president, Sunil Vaishya says that the local manufacturing units were working below capacity due to the crisis. “Due to euro zone crisis, the profit margins have been affected and the orders have slowed in all sectors, including IT, food processing, industrial goods and leather,” he informed.

Meanwhile, the industry is taking steps to look to othermarkets beyond USA and Europe signed MoUs with industry chambers of Argentina and Brazil for trade promotion.

“We are in touch with the businessmen in Latin American countries, including Mexico, Chile, Paraguay, Uruguay, Argentina and Brazil for trade possibilities in food processing and medicine sectors,” said city based dairy products exporter, Atul Mehra.

“The exact impact on the sector could be known only by July-August, when the status of payment commitments from clients in European countries gets clear,” he added.

The Small and Medium Enterprises (SMEs) are the worst hit with the crisis, as they operate on slim profit margins and small turnovers, which are prone to currency fluctuations.

The gloom is conspicuous at Jajmau, home to some 150 leather SMEs who procure their stock from the 400-odd manufacturing units spread in and around the city. In the last few weeks, at least 15 of these traders have declared themselves bankrupt and have created a hole of around Rs 10 crore in the trade. Another dozen or so are expected to follow. They are expected to suck out another Rs 5 crore.

The layoffs in the footwear units are going unnoticed, but it is a fact that in the past month alone, at least 150-200 skilled footwear labourers and technicians have been rendered jobless due to low business volumes.

First Published: Sat, July 03 2010. 00:39 IST