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Leatherbiz Market Intelligence executive summary: • • • • • • •
Renewed US-China trade confrontation would have material effects on the leather supply chain The disputes inject increased uncertainty into the wider world economy Thus far, each bout of turbulence triggered by the US administration has unwound relatively quickly; perhaps this one will too In any case, pressure along the leather supply chain is tightening The ‘protein route’ is imposing a hard floor under raw material prices In logistics, costs and times are rising, while flexibility declines, and this is still not fully reflected in many budgets There is also a visible fall in capability within leather purchasing at some big brands, making it more difficult to bring projects to a successful conclusion.
MARKET INTELLIGENCE
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he past two weeks have felt like a brief breather. In Asia, the autumn holiday slowed down many decisions; conversations continued, but much was postponed. At the same time, the global political backdrop remains tense, even if there are isolated glimmers of hope. For Europe’s leather and hide industry this translates into muted demand, hesitant orders and more uncertainty than this time of year usually brings. On October 10, the calm shattered again: President Trump signalled extra tariffs of 100% on imports from China unless a satisfactory deal on rare-earth minerals is reached. The period of relative quiet is therefore over; uncertainty around US–China trade and pricing has returned. For the leather chain this matters immediately: raw hides moving from the US to China and finished goods flowing from China to the US will be squarely in the line of fire. The risk is not just higher duties, but volatile costings, re-routing and compliance checks that can stall shipments and force last-minute ‘tariff engineering’. Expect some buyers to front-load bookings while others pause, and for negotiations on specifications and delivery windows to harden until there is clearer guidance. On the ground, the effects are tangible. Across day-to-day business, orders that are normally placed in October, or at least seriously negotiated, are, in many places, still missing. The longer this persists, the harder it becomes to secure basic plant utilisation and avoid downtime. Traditional tanning regions report lower output, rising work-in-progress and projects stuck in limbo. It is not uniform, but broad enough to qualify as a genuine trend. A key backdrop is the automotive sector.
Globally, more vehicles are being sold, yet in Europe important manufacturers, especially in the premium segment, are losing ground. At the same time, the share of models and trim packages that use less leather, or highlight alternative materials, is growing. The old equation “more cars equals more leather” no longer holds. What matters now is which vehicles are sold where, and with what interior mix. For the leather sector this means greater dependence on exact specifications, from seat covers to door trims and steering wheels, as well as on the timing of model updates. On the raw material side the balance is also shifting. More buyers are purchasing hides for purposes other than making leather; the aim in these cases is to extract protein, gelatine or collagen. This ‘protein pathway’ is no longer a side topic; it is a firm market. It effectively sets a floor under raw hide prices, because sharp price drops only accelerate diversion into this use. For European tanneries that is creating new pinch-points: certain splits, sought after for suede, are harder to secure or no longer fit familiar costing models. In practice the change is very concrete. Many firms are relocating parts of leather production to countries with cheaper energy and fewer regulations. This brings costs down, but it also reduces flexibility. Journeys are longer, coordination is trickier, last-minute changes are harder. Projects can fail if a single document is missing, or because of an apparently minor specification rule or because of details in the paperwork. These details sounds trivial, but the consequences are real: delays, extra costs and, in the worst case, lost orders. At the same time, quality is being sorted more tightly by end use. Sorting is different for automotive seating, for bags or for footwear. Audits and checks on chemicals, provenance and emissions are important for
trust and traceability, but they add to the work load and cost time and money. There is also a structural problem in the chain. At several large brands the decisionmaking and technical competence in leather purchasing is clearly eroding. Collaboration becomes harder when specifications grow needlessly complicated, approvals are delayed or altered at the last minute, and rounds of questions spiral without a clear aim. These frictions multiply across the tiers and ultimately hit production, precisely where time-windows are tight and errors are costly. Logistics is another area that is often underestimated. Costs and lead-times are gaining weight, and many plans still neglect adequate buffers. Because of production being moved around, flexibility is, if anything, decreasing. It feels like this reality is still not fully priced into many costings, especially when several steps of the chain cross borders. In Central Europe, the meat industry is likely to see shifts and further consolidation. Slaughter numbers have been rather low, which has helped keep raw material supply in check. Many observers, however, expect rising volumes in the coming months. If that wave meets a leather industry that is not yet back to full utilisation, the pressure builds. Price alone will not automatically balance things, because the protein pathway pulls at part of the raw material and sets a lower limit. Internationally, China and Vietnam have booked unusually large volumes of US hides in recent weeks. Buyers seem confident that orders will materialise and that the finished leather they produce will be taken up promptly. This contrasts with a marked decline in footwear and leathergoods shipments from China and Vietnam in the third quarter of the year. The raw‑material purchases nevertheless imply expectations of firmer orders and sales ahead, lean inventories, and no assumption of further price declines. With trade frictions rekindled, that cautious optimism could quickly be undermined. The next few weeks will show what actually unfolds. Running through all of this is a basic question: leather must not be forced into becoming an interchangeable industrial commodity. Leather’s natural strengths are clear: breathability, which improves seating and comfort; form adaptation, as it settles ergonomically with use rather than sagging early; and durability, which, with proper care, delivers many years of real service. Add to that the haptics, ageing and character you can feel and see. All told, the structural crisis of Europe’s leather industry continues, if anything with a