Later this month, suppliers and customers in the world's leather-tanning industry will make their way to Bologna, Italy, for the latest Tanning Tech exhibition.
On the stands: the latest innovations for producing high-quality leathers. Every exhibition features new products for applications throughout the processing chain that converts raw hides from a variety of sources--cattle, sheep, pigs, deer, reptiles, and birds--into supple, luxurious yet hardworking leather.
This year is no exception, but there is an added urgency over environmentally aware products and processes. Pending or threatened legislation faces the plethora of processors who make up the industry. And given the industry structure, it is the chemical suppliers who will be relied on to provide "eco-friendly" answers.
Some 42% of the world's leather is made in Asia. European production accounts for 24%; the Americas, 20%; and the rest of the world, 14%, says Tilman Taeger, head of basic innovation and technology management for leather in BASF's performance chemicals unit. Only eight tanneries worldwide each produce more than 500,000 sq meters of leather annually, although they satisfy roughly 44% of world demand. The rest of world consumption is satisfied by 74 tanneries--14 of medium size and 60 that produce less than 200,000 sq meters a year.
Those smaller tanneries, Taeger notes, "employ mainly undereducated workers. They expect that development takes place in the premises of the chemical suppliers. For this market, process development beats chemical research." But even the big tanners need heavy technical service, suppliers say.
According to a recent presentation by leather chemicals producer TFL, global consumption of leather chemicals is about 1.8 million metric tons per year, worth nearly $4.5 billion. Making up that worldwide demand, the company adds, are some 6,000 different preparations, mixtures, and specialty products.
The industry is dominated by the "big five"--BASF, Bayer, Clariant, Stahl, and TFL--which together command about 40% of the market. The remainder is held by nearly 200 other, often local, suppliers whose sales run anywhere from $10 million to $100 million per year.
Currently, more than half of the most important global leather research centers are located in Europe. But that concentration is beginning to change as companies look to China, in particular.
According to one estimate, Asian tanneries made up a full 50% of world demand for leather processing chemicals in 2002, and that share is expected to continue to rise. The reason is easy to see, BASF's Taeger says: The ancient art of leathermaking has remained a handicraft around the world, despite a modern scientific basis.
"The processes are largely manual work, and there is little automation," Taeger says. "Low wages in developing countries have recently led to the relocation of more and more tannery capacity to China, India, and South America. Only highly innovative and specialized tanneries survive in Europe and the U.S."
For Bayer's leather chemicals operations--now being transferred to the spin-off company Lanxess--China is already an important market. According to Lanxess Chairman Axel C. Heitmann, the leather business unit has the highest sales of all Lanxess units in China, channeled through the joint venture Lanxess Wuxi Leather Chemicals Co.
THE VENTURE has been producing 10,000 metric tons per year of leather chemicals in Wuxi, northwest of Shanghai, since 1998. The site also houses Lanxess' biggest R&D laboratory for leather products, serving China and the rest of the Asia-Pacific region.
TFL, which was created in 1996 by the merger of the leather chemicals businesses of Röhm/Stockhausen and Ciba-Geigy, recently opened a plant in China. That investment was one of the pluses cited last November when the company was sold by private-equity firm Permira to the German private-equity company Odewald & Compagnie. Permira had acquired the business in 2001 through a management buyout.
Similarly, the other independent company, Netherlands-based Stahl, has been working to boost its business in the leather-producing areas outside Europe and the U.S. In July, Stahl acquired the Barcelona-based company Pielcolor, which is particularly strong in the fast-growth areas of Latin America and Asia. Stahl became an independent company in 2002, following a $450 million investment fund buyout of Avecia's leather chemicals operations.
Clariant's leather chemicals business has been built up through a combination of acquisitions and internal growth. The company itself pulled together the chemical operations of Sandoz and Hoechst in 1997. And in 2000, Clariant bought Britain-based BTP, which gave it a complete range of products to offer the industry, says Adrian Meier, head of Clariant's leather chemicals business unit.
He observes that "the barriers to entry in the leather chemicals industry are very low. Success depends more on personal relationships. The whole industry is very service oriented, so if a supplier can give good service, even if only by reselling, the supplier can be successful." And although that competition may be annoying to the original chemical producers, he adds, "the service provider is our customer, too."
AS MEIER SEES IT, the most important issue facing the industry is ecological concerns. A tannery must have processes using less water, leaving fewer toxic materials in the finished leather, and so on, he says.
BASF's Taeger concurs, pointing out that the problem in tanning is deep-seated. Of all the chemicals used in the hides-to-leather process, he says, "not a single one is free of environmental problems." Some examples: A ban on ethoxylated nonylphenol surfactants comes into force in the European Union in January, and some aromatic amino dyes that have been used in the past may be carcinogenic, as may be chromium(VI), a processing by-product of the chromium(III) used in tanning. Moreover, regulators are pressing for better ways of treating tannery wastes.
Many of the materials have been used in tanning for more than 100 years, but legislators have given deadlines for the phaseout of some of the worst. And, as Taeger notes, the industry is being affected not just in regions where one might expect stringent regulations, such as Western Europe and the U.S. Some local requirements, he says, "have recently globalized themselves, being adopted by the automotive industry or by international companies like Nike or Adidas." Such companies cannot work with different standards in different countries, he points out, so they set the tightest standards as their own individual standards.
The other main issue facing the industry, Meier says, is a simple one: Leather is a "by-product" industry, dependent on consumption of meat. The big beef-producing countries--Brazil, Argentina, Australia--are the largest producers of cow hides, and New Zealand is the bellwether for sheep. The growth, he adds, is primarily in Asia and in the Mercosur common market countries of Uruguay, Paraguay, Argentina, and Brazil.
There is a defined production of raw hides--"the cows are still the same." However, demand for higher quality leather is increasing, Taeger says. "So our challenge is upgrading products, to upgrade to A-grade leather from B-grade."
That demand, he adds, reflects the increasing demand for leather for furniture, garments, and car upholstery, all of which must be delivered with no defects. And that's where increasingly sophisticated--and eco-friendly--chemicals and formulations come to the rescue.